ESTIMATION WITH CENSORED REGRESSORS: BASIC ISSUES

Roberto Rigobon and Thomas M. Stoker

International Economic Review, 2007, vol. 48, issue 4, 1441-1467

Abstract: We study issues that arise for estimation of a linear model when a regressor is censored. We discuss the efficiency losses from dropping censored observations, and illustrate the losses for bound censoring. We show that the common practice of introducing a dummy variable to "correct for" censoring does not correct bias or improve estimation. We show how censored observations generally have zero semiparametric information, and we discuss implications for estimation. We derive the likelihood function for a parametric model of mixed bound-independent censoring, and apply that model to the estimation of wealth effects on consumption. Copyright 2007 by the Economics Department Of The University Of Pennsylvania And Osaka University Institute Of Social And Economic Research Association.

Date: 2007
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