Modelling Charitable Donations: A Latent Class Panel Inverse Hyperbolic Sine Heteroskedastic Tobit Approach

33 Pages Posted: 24 May 2013

See all articles by Sarah Brown

Sarah Brown

University of Sheffield

William H. Greene

New York University Stern School of Business

Mark N. Harris

Curtin University

Karl Taylor

University of Sheffield - Department of Economics

Date Written: February 2, 2012

Abstract

We make a methodological contribution to the latent class literature by re-examining censored variable analysis within a panel data context. Specifically, we extend the standard latent class tobit panel approach to include random effects, to allow for heteroskedasticity and to incorporate the inverse hyperbolic sine (IHS) transformation of the dependent variable. The IHS transformation ensures robustness to non-normality in the original (untransformed) dependent variable. We then use this framework to model charitable donations, an interesting application given the potential for divergent groups of individuals in the population with regard to their donating behaviour, which we uncover by a latent class approach. Our findings, which are based on U.S. panel data drawn from five waves of the Panel Study of Income Dynamics, do suggest two distinct classes. There is a clear disparity between the probabilities of zero donations across these classes, with one class dominated by the observed zero givers and associated with relatively low levels of predicted giving. We find clear evidence of both heteroskedasticity and random effects. All IHS parameters were significantly different from zero and different across classes. In combination, these findings endorse the importance of our three modelling extensions.

Keywords: Charity, Donations, Latent Class, Panel Data, Tobit

JEL Classification: D19, H24, H41, H31

Suggested Citation

Brown, Sarah and Greene, William H. and Harris, Mark N. and Taylor, Karl B., Modelling Charitable Donations: A Latent Class Panel Inverse Hyperbolic Sine Heteroskedastic Tobit Approach (February 2, 2012). Available at SSRN: https://ssrn.com/abstract=2268923 or http://dx.doi.org/10.2139/ssrn.2268923

Sarah Brown

University of Sheffield ( email )

17 Mappin Street
Sheffield, Sheffield S1 4DT
United Kingdom

William H. Greene

New York University Stern School of Business ( email )

44 West 4th Street
Suite 9-160
New York, NY NY 10012
United States
212-998-0876 (Phone)

HOME PAGE: http://people.stern.nyu.edu/wgreene

Mark N. Harris (Contact Author)

Curtin University ( email )

Kent Street
Bentley
Perth, WA WA 6102
Australia

HOME PAGE: http://business.curtin.edu.au/contact/staff_directory/?profile=Mark-Harris

Karl B. Taylor

University of Sheffield - Department of Economics ( email )

9 Mappin Street
Sheffield, S1 4DT
United Kingdom

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