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A Two-Stage Estimator for Probit Models with Structural Group Effects

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  • George J. Borjas
  • Glenn T. Sueyoshi

Abstract

This paper outlines a two-stage technique for estimation and inference in probit models with structural group effects. The structural group specification belongs to a broader class of random components models. In particular, individuals in a given group share a common component in the specification of the conditional mean of a latent variable. For a number of computational reasons, existing random-effects models are impractical for estimation and inference in this type of problem. Our two-stage estimator provides an easily estimable alternative to the random effect specification. In addition, we conduct a Monte Carlo simulation comparing the performance of alternative estimators, and find that the two-stage estimator is superior -- both in terms of estimation and inference -- to traditional estimators.

Suggested Citation

  • George J. Borjas & Glenn T. Sueyoshi, 1993. "A Two-Stage Estimator for Probit Models with Structural Group Effects," NBER Technical Working Papers 0146, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberte:0146
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    References listed on IDEAS

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    1. Avery, Robert B & Hansen, Lars Peter & Hotz, V Joseph, 1983. "Multiperiod Probit Models and Orthogonality Condition Estimation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 24(1), pages 21-35, February.
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    5. George J. Borjas, 2021. "Self-Selection and the Earnings of Immigrants," World Scientific Book Chapters, in: Foundational Essays in Immigration Economics, chapter 4, pages 69-91, World Scientific Publishing Co. Pte. Ltd..
    6. Moulton, Brent R., 1986. "Random group effects and the precision of regression estimates," Journal of Econometrics, Elsevier, vol. 32(3), pages 385-397, August.
    7. James J. Heckman & Robert J. Willis, 1976. "Estimation of a Stochastic Model of Reproduction: An Econometric Approach," NBER Chapters, in: Household Production and Consumption, pages 99-146, National Bureau of Economic Research, Inc.
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    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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