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st: RE: 2 limit tobit in system of demand equations
Even if such a model exists in STATA, the model you propose, I believe, is not correct. There is a fairly substantial literature on estimating demand systems with binding non-negativity constraints (and, in your case, apparently binding upper constraints as well). The problem is that when an observation is at such a corner solution, the relevant RHS variable is no longer the market price, but the shadow price. In addition, there is a statistical issue that arises in such a model referred to as coherency. See the paper on my website (which is not published for a list of references in this area: http://faculty.smu.edu/millimet/pdf/corners.pdf).
From: Brunetti Mike [mailto:firstname.lastname@example.org]
Sent: Tue 6/3/2003 2:25 PM
Subject: st: 2 limit tobit in system of demand equations
I was wondering if there was a command in stata, or
possibly, an .ado file that can estimate a system of
demand equations with censoring on both sides.
Specifically, I am trying to estimate a system of 2
demand equations which are censored at 0 and 1.
I know that I can estimate a single equation using the
“tobit” command but how can I estimate two equations
Here is the model I would like to estimate:
For 3 goods the observed expenditure share on each is:
C, S, H
C* and S* represent the desired expenditure share on
Where X is a matrix of variables, b1 and b2 are
coefficients, and e1 and e2 are errors.
The system is defined as:
C= 0 if C*<=0
C* if 0<C*<1
1 if C*>1
S= 0 if S*<=0
S* if 0<S*<1-C
1-C if S*>1
The equations for C and S are each two limit tobits.
But estimating this system simultaneously is
complicated. Any help or suggestions would be greatly
Thanks a lot.
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