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Two-Part Models for Fractional Responses Defined as Ratios of Integers

Harald Oberhofer () and Michael Pfaffermayr ()

Econometrics, 2014, vol. 2, issue 3, 1-22

Abstract: This paper discusses two alternative two-part models for fractional response variables that are defined as ratios of integers. The first two-part model assumes a Binomial distribution and known group size. It nests the one-part fractional response model proposed by Papke and Wooldridge (1996) and, thus, allows one to apply Wald, LM and/or LR tests in order to discriminate between the two models. The second model extends the first one by allowing for overdispersion in the data. We demonstrate the usefulness of the proposed two-part models for data on the 401(k) pension plan participation rates used in Papke and Wooldridge (1996).

Keywords: fractional response models for ratios of integers; one-part versus two-part models; Wald test; LM test; LR test (search for similar items in EconPapers)
JEL-codes: B23 C C00 C01 C1 C2 C3 C4 C5 C8 (search for similar items in EconPapers)
Date: 2014
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