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Estimating Linear Probability Functions: A Comparison of Approaches

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  • Debertin, David L.
  • Pagoulatos, Angelos
  • Smith, Eldon D.

Abstract

A linear probability function permits the estimation of the probability of the occurrence or non-occurrence of a discrete event. Nerlove and Press (p. 3–9) outline several statistical problems that arise if such a function is estimated via OLS. In particular, heteroskedasticity inherent in such a regression model leads to inefficient estimates of parameters (Amemiya 1973, Horn and Horn). Moreover, without restrictions on the conventional OLS model, probability estimates lying outside the unit (0–1) interval are possible (Nerlove and Press). Goldberger and Kmenta suggest two approaches for alleviating the heteroskedasticity problems inherent in the OLS regression model. Logit analysis will also alleviate heteroskedasticity problems and ensure that estimated probabilities will lie within the unit interval (Amemiya 1974, Hauck and Donner, Hill and Kau, Horn and Horn, Horn, Horn, and Duncan, Theil 1970).

Suggested Citation

  • Debertin, David L. & Pagoulatos, Angelos & Smith, Eldon D., 1980. "Estimating Linear Probability Functions: A Comparison of Approaches," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 12(2), pages 65-69, December.
    • Handle: RePEc:cup:jagaec:v:12:y:1980:i:02:p:65-69_01
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    References listed on IDEAS

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    1. Smith, Eldon D. & Deaton, Brady J. & Kelch, David R., 1978. "Location Determinants of Manufacturing Industry in Rural Areas," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 10(1), pages 23-32, July.
    2. Lowell Hill & Paul Kau, 1973. "Application of Multivariate Probit to a Threshold Model of Grain Dryer Purchasing Decisions," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 55(1), pages 19-27.
    3. Batie, Sandra S., 1978. "Discussion: Location Determinants Of Manufacturing Industry In Rural Areas," Southern Journal of Agricultural Economics, Southern Agricultural Economics Association, vol. 10(1), pages 1-5, July.
    4. Batie, Sandra S., 1978. "Discussion: Location Determinants of Manufacturing Industry in Rural Areas," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 10(1), pages 33-37, July.
    5. Li, Mingche M, 1977. "A Logit Model of Homeownership," Econometrica, Econometric Society, vol. 45(5), pages 1081-1097, July.
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    2. Kusmin, Lorin D., 1994. "Factors Associated with the Growth of Local and Regional Economies: A Review of Selected Empirical Literature," Staff Reports 278733, United States Department of Agriculture, Economic Research Service.

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