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Lecture 7
FENG Qu
1 denotes the benefit from having another child, e.g., packages above, tax rebate,
baby bonus, bigger HDB flatter, subsidized childcare, and happiness, etc.;
0 denotes the (opportunity) cost, e.g., economic costs (of pregnancy, birth,
growing, education, healthcare), leisure, pay increase otherwise,
Then, the decision can be modeled by:
= 1 if 1 0 > 0;
0 otherwise
3
Thus,
( = 1| ) = (1 0 > 0) = (0 + 1 1 + + + > 0)
Suppose the random variable follows a distribution with CDF (). Thus
( = 1| ) = ( > (0 + 1 1 + + ))
= 1 ((0 + 1 1 + + ))
(0 + 1 1 + + ) = (0 + 1 1 + + )
exp(0 + 1 1 + + )
(0 + 1 1 + + ) =
1 + exp(0 + 1 1 + + )
= 0 + 1 1 + + + , = 1, , .
SS
Model
Residual
10.9213986
19.5458145
5
116
2.18427972
.168498401
Total
30.4672131
121
.25179515
yb
Coef.
cpl
num
hmi
we
wa
_cons
.1865787
-.2759397
-.0005362
-.0551932
-.0175984
1.521159
Number of obs
116)
F( 5,
Prob > F
R-squared
Adj R-squared
Root MSE
MS
df
Std. Err.
.076402
.0454467
.0362719
.0474809
.0085417
.2663598
t
2.44
-6.07
-0.01
-1.16
-2.06
5.71
P>|t|
0.016
0.000
0.988
0.247
0.042
0.000
=
=
=
=
=
=
122
12.96
0.0000
0.3585
0.3308
.41049
.3379026
-.1859267
.0713049
.0388486
-.0006805
2.048718
Result:
Policy package (cpl) has big positive effect on peoples birth intention.
Prediction:
Stata command: predict yhat, xb
E.g., 1 =.187 can be interpreted that additional unit of policy package increases
the probability of having another child by18.7%, holding other factors fixed.
9
nwifeinc
Source
educ kidslt6
SS
df
MS
Model
Residual
22.3586557
162.3691
3
749
7.45288523
.216781175
Total
184.727756
752
.245648611
inlf
Coef.
nwifeinc
educ
kidslt6
_cons
-.0077404
.0572465
-.2227047
.0737593
Std. Err.
.001519
.0077912
.0325987
.0931678
t
-5.10
7.35
-6.83
0.79
Number of obs
F( 3,
749)
Prob > F
R-squared
Adj R-squared
Root MSE
P>|t|
0.000
0.000
0.000
0.429
10
=
=
=
=
=
=
753
34.38
0.0000
0.1210
0.1175
.4656
-.0047583
.0725418
-.158709
.2566604
Advantages of LPM:
Disadvantages of LPM:
1. heteroskedasticity:
o heteroskedasticity-robust inference
(exercise)
2. the predicted probability could be < 0 or > 1!
11
12
(0 + 1 1 + + ) = (0 + 1 1 + + )
exp(0 + 1 1 + + )
(0 + 1 1 + + ) =
1 + exp(0 + 1 1 + + )
For CDFs, 0 () 1 and 0
exp()
1+exp()
and =
0 +
1 1 ++
)
exp(
0 +
1 1 ++
)
1+exp(
0:
1:
2:
3:
log
log
log
log
likelihood
likelihood
likelihood
likelihood
= -514.8732
= -466.34923
= -465.4538
= -465.45302
Probit regression
Number of obs
LR chi2(3)
Prob > chi2
Pseudo R2
Coef.
nwifeinc
educ
kidslt6
_cons
-.0231133
.1666664
-.6525247
-1.245253
Std. Err.
.0045451
.0235149
.0996887
.2714193
z
-5.09
7.09
-6.55
-4.59
P>|z|
0.000
0.000
0.000
0.000
=
=
=
=
753
98.84
0.0000
0.0960
-.014205
.2127547
-.4571383
-.7132807
15
0:
1:
2:
3:
log
log
log
log
likelihood
likelihood
likelihood
likelihood
= -514.8732
= -466.55427
= -465.55673
= -465.55373
Logistic regression
Number of obs
LR chi2(3)
Prob > chi2
Pseudo R2
Coef.
nwifeinc
educ
kidslt6
_cons
-.0385731
.2741035
-1.068074
-2.046709
Std. Err.
.0078653
.0399976
.167187
.4552589
z
-4.90
6.85
-6.39
-4.50
P>|z|
0.000
0.000
0.000
0.000
=
=
=
=
753
98.64
0.0000
0.0958
-.0231574
.3524973
-.740394
-1.154418
.274 is the coefficient of educ from logit regression. (.057 in LPM and .1666 in
probit)
(Q: why so different?)
16
(i) Continuous :
( = 1| )
= (0 + 1 1 + + ) , = 1, ,
()
1+()
and () = () =
()
(1+())2
(for LPM, () = 1)
(0 + 1 + 2 2 + + ) (0 + 2 2 + + )
17
Remarks:
1. Different from LPM, the partial effects in probit and logit models are not
constant, related with the values of .Slope parameter is NOT the partial
effect of on the probability of success, implying that the interpretations of
coefficients in these 3 models are different, not comparable.
2. Since > 0 for probit and logit, the direction of the partial effect of
18
Probit regression:
. probit inlf nwifeinc educ kidslt6
Iteration
Iter ation
Iteration
Iteration
0:
1:
2:
3:
log
log
log
log
likelihood
likelihood
likelihood
likelihood
= -514.8732
= -466.34923
= -465.4538
= -465.45302
Probit regression
Number of obs
LR chi2(3)
Prob > chi2
Pseudo R2
Coef.
nwifeinc
educ
kidslt6
_cons
-.0231133
.1666664
-.6525247
-1.245253
Std. Err.
.0045451
.0235149
.0996887
.2714193
P>|z|
-5.09
7.09
-6.55
-4.59
0.000
0.000
0.000
0.000
=
=
=
=
753
98.84
0.0000
0.0960
-.014205
.2127547
-.4571383
-.7132807
dy/dx
nwifeinc
educ
kidslt6
-.0090691
.0653958
-.2560349
Std. Err.
.00178
.00921
.03923
z
-5.08
7.10
-6.53
95% C.I.
P>|z|
0.000
0.000
0.000
-.012566 -.005572
.047335 .083457
-.332929 -.179141
X
20.129
12.2869
.237716
logit regression:
. logit inlf nwifeinc educ kidslt6
Iteration
Iter ation
Iteration
Iteration
0:
1:
2:
3:
log
log
log
log
likelihood
likelihood
likelihood
likelihood
= -514.8732
= -466.55427
= -465.55673
= -465.55373
Logistic regression
Number of obs
LR chi2(3)
Prob > chi2
Pseudo R2
Coef.
nwifeinc
educ
kidslt6
_cons
-.0385731
.2741035
-1.068074
-2.046709
Std. Err.
.0078653
.0399976
.167187
.4552589
P>|z|
-4.90
6.85
-6.39
-4.50
0.000
0.000
0.000
0.000
=
=
=
=
753
98.64
0.0000
0.0958
-.0231574
.3524973
-.740394
-1.154418
. mfx
Marginal effects after logit
y = Pr(inlf) (predict)
= .57219848
variable
dy/dx
nwifeinc
educ
kidslt6
-.0094422
.0670971
-.2614511
Std. Err.
.00193
.00977
.04111
z
-4.90
6.87
-6.36
P>|z|
95% C.I.
0.000
0.000
0.000
-.013222 -.005663
.047943 .086251
-.342023 -.18088
X
20.129
12.2869
.237716
Variable
Obs
Mean
nwifeinc
educ
kidslt6
753
753
753
20.12896
12.28685
.2377158
Std. Dev.
11.6348
2.280246
.523959
Min
Max
-.0290575
5
0
96
17
3
LPM result:
. reg inlf
nwifeinc
Source
educ kidslt6
SS
df
MS
Model
Residual
22.3586557
162.3691
3
749
7.45288523
.216781175
Total
184.727756
752
.245648611
inlf
Coef.
nwifeinc
educ
kidslt6
_cons
-.0077404
.0572465
-.2227047
.0737593
Std. Err.
.001519
.0077912
.0325987
.0931678
t
-5.10
7.35
-6.83
0.79
Number of obs
F( 3,
749)
Prob > F
R-squared
Adj R-squared
Root MSE
P>|t|
0.000
0.000
0.000
0.429
=
=
=
=
=
=
753
34.38
0.0000
0.1210
0.1175
.4656
-.0047583
.0725418
-.158709
.2566604
This empirical example tells us that though the estimates of 2 , are different in
LPM, probit and logit regressions, their partial effects evaluated at mean values of
regressors are very close.
(Q: why does this make sense?)
21
Partial (marginal) effects in LPM:
,
()
(1+())
A simple rule for comparing coefficients in these 3 models: partial effects are
considered to be approximately equal:
()
(0)
(1+(0))2
()
(1+())
0.4 0.25
2.5
, 4
and 0.625
Example above:
= 0.057, = 0.167, = 0.274
22
Check whether lies in the unit interval and compare the predicted probabilities
in probit and logit models.
Note:
In Stata 11, the calculation of marginal effect has 3 cases: marginal
effect at the mean, marginal effect at a representative value and average
marginal effect. Stata commands are:
margins, dydx(*) atmean
margins, dydx(*) at(nwifeinc=0 educ=6 kidslt6=1)
margins, dydx(*)
23
()
1+()
For probit and logit models, we cant solve for the maximum explicitly. We need
use numerical methods (iterations): e.g.,
0:
1:
2:
3:
log
log
log
log
likelihood
likelihood
likelihood
likelihood
= -514.8732
= -466.34923
= -465.4538
= -465.45302
Probit regression
Number of obs
LR chi2(3)
Prob > chi2
Pseudo R2
Coef.
nwifeinc
educ
kidslt6
_cons
-.0231133
.1666664
-.6525247
-1.245253
Std. Err.
.0045451
.0235149
.0996887
.2714193
z
-5.09
7.09
-6.55
-4.59
P>|z|
0.000
0.000
0.000
0.000
Properties of MLE:
o consistent
o asymptotically normal
o asymptotically efficient
25
=
=
=
=
753
98.84
0.0000
0.0960
-.014205
.2127547
-.4571383
-.7132807
78.00
0.0000
2*educ- kidslt6=0
2*[inlf]educ - [inlf]kidslt6 = 0
chi2( 1) =
Prob > chi2 =
65.05
0.0000
Example 3: 0 : 22 3 = 0 and 1 + 2 = 0
Stata commands:
test (2*educ- kidslt6=0) (educ+ nwifeinc=0)
. test
( 1)
( 2)
69.16
0.0000
27