A count‐amount model with endogenous recording of observations

B. M. S. Van Praag and E. M. Vermeulen

Journal of Applied Econometrics, 1993, vol. 8, issue 4, 383-395

Abstract: This paper discusses some of the problems which are encountered if an event Ỹ is only recorded if its value satisfies a recording criterion A. It follows that we get an incorrect idea of the frequency of the events and of its true distribution. In order to solve these problems, an econometric model has been constructed by means of which consistent estimation of the true parameters is possible. The model is estimated on consumer purchases, where the number of purchases is assumed to be NEGBIN‐distributed and the purchase amounts obey a lognormal distribution. Purchases are only recorded if their value exceeds Dfl. 10. It is shown that ignoring the recording condition will result in biased estimates and invalid predictions. Apart from this, the model is, among others, relevant for insurance problems, marketing surveys and criminological and epidemiological phenomena.

Date: 1993
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