Fitting and interpreting Cragg's tobit alternative using Stata
William J. Burke
Department of Agricultural, Food, and Resource Economics
Michigan State University
East Lansing, MI
[email protected]
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Abstract. In this article, I introduce the user-written command craggit, which
simultaneously fits both tiers of Cragg’s (1971, Econometrica 39:
829–844) “twotier” (sometimes called “two-stage”
or “double-hurdle”) alternative to tobit for corner-solution
models. A key limitation to the tobit model is that the probability of a
positive value and the actual value, given that it is positive, are determined
by the same underlying process (i.e., the same parameters). Cragg proposed a
more flexible alternative that allows these outcomes to be determined by
separate processes through the incorporation of a probit model in the first
tier and a truncated normal model in the second. Also, tobit is nested
in craggit, making the latter a popular choice among
“two-tier” models. In the article, I also present postestimation
syntax to facilitate the understanding and interpretation of results.
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William J. Burke
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craggit, two tier, two stage, double hurdle, corner-solution models, Craggit's tobit
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