Marginal Changes in Random Parameters Ordered Response Models with Interaction Terms

Andreas Drichoutis and Rodolfo Nayga

Econometric Reviews, 2011, vol. 30, issue 5, 565-576

Abstract: Marginal changes of interacted variables and interaction terms in random parameters ordered response models are calculated incorrectly in econometric softwares. We derive the correct formulas for calculating these marginal changes. In our empirical example, we observe significant changes not only in the magnitude of the marginal effects but also in their standard errors, suggesting that the incorrect estimation of the marginal effects of these variables as is commonly practiced can render biased inferences on the findings.

Date: 2011
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DOI: 10.1080/07474938.2011.553564

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