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Estimation of Tobit Type Censored Demand Systems: A Comparison of Estimators

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  • Mikkel Barslund

    (Department of Economics, University of Copenhagen)

Abstract

Recently a number of authors have suggested to estimate censored demand systems as a system of Tobit multivariate equations employing a Quasi Maximum Likelihood (QML) estimator based on bivariate Tobit models. In this paper I study the efficiency of this QML estimator relative to the asymptotically more efficient Simulated ML (SML) estimator in the context of a censored Almost Ideal demand system. Further, a simpler QML estimator based on the sum of univariate Tobit models is introduced. A Monte Carlo simulation comparing the three estimators is performed on three different sample sizes. The QML estimators perform well in the presence of moderate sized error correlation coefficients often found in empirical studies. With absolute larger correlation coefficients, the SML estimator is found to be superior. The paper lends support to the general use of the QML estimators and points towards the use of simple etimators for more general censored systems of equations.

Suggested Citation

  • Mikkel Barslund, 2007. "Estimation of Tobit Type Censored Demand Systems: A Comparison of Estimators," Discussion Papers 07-16, University of Copenhagen. Department of Economics.
    • Handle: RePEc:kud:kuiedp:0716
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    File URL: http://www.econ.ku.dk/english/research/publications/wp/2007/0716.pdf/
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    References listed on IDEAS

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    1. Borsch-Supan, Axel & Hajivassiliou, Vassilis A., 1993. "Smooth unbiased multivariate probability simulators for maximum likelihood estimation of limited dependent variable models," Journal of Econometrics, Elsevier, vol. 58(3), pages 347-368, August.
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    3. Backus, Peter, 2010. "Is charity a homogeneous good?," Economic Research Papers 270773, University of Warwick - Department of Economics.
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    More about this item

    Keywords

    censored demand system; Monte Carlo; quasi maximum likelihood; simulated maximum likelihood;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C34 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Truncated and Censored Models; Switching Regression Models

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