Misclassification of the Dependent Variable in Binary Choice Models: Evidence from Five Latin American Countries

Evangelos Falaris

No 07-05, Working Papers from University of Delaware, Department of Economics

Abstract: Misclassification of the dependent variable in binary choice models can result in inconsistency of the parameter estimates. I estimate probit models that treat misclassification probabilities as estimable parameters for three labor market outcomes: formal sector employment, pension contribution and job change. I use Living Standards Measurement Study data from Nicaragua, Peru, Brazil, Guatemala, and Panama. I find that there is significant misclassification in eleven of the sixteen cases that I investigate. If misclassification is present, but is ignored, estimates of the probit parameters and their standard errors are biased toward zero. In most cases, predicted probabilities of the outcomes are significantly affected by misclassification of the dependent variable. Even a moderate degree of misclassification can have substantial effects on the estimated parameters and on many of the predictions.

Keywords: Data Quality; Misclassification; Formal Sector; Pension Contributor; Job Change; Nicaragua; Peru; Brazil; Guatemala; Panama (search for similar items in EconPapers)
JEL-codes: C25 C81 J26 J62 O17 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2007-03
New Economics Papers: this item is included in nep-dcm, nep-ecm and nep-lam
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Published in Applied Economics

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Related works:
Journal Article: Misclassification of the dependent variable in binary choice models: evidence from five Latin American countries (2011)
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