Exact Computation of Censored Least Absolute Deviations Estimator

47 Pages Posted: 29 Dec 2013 Last revised: 7 Dec 2018

See all articles by Yannis Bilias

Yannis Bilias

Athens University of Economics and Business

Kostas Florios

Athens University of Economics and Business

Spyros Skouras

Athens University of Economics and Business - Department of International and European Economic Studies

Date Written: December 4, 2018

Abstract

We show that exact computation of the censored least absolute deviations (CLAD) estimator proposed by Powell (1984) may be achieved by formulating the estimator as a linear Mixed Integer Programming (MIP) problem with disjunctive constraints. We apply our approach to three previously studied datasets and find that widely used approximate optimization algorithms can lead to erroneous conclusions. Extensive simulations confirm that MIP- based computation using available solvers is effective for datasets typically encountered in econometric applications and that, despite the proliferation of competitors, CLAD remains a useful estimator.

Keywords: CLAD estimator, censored regression models, Mixed Integer Programming, disjunctive constraints

JEL Classification: C13, C14, C24, C44, C61

Suggested Citation

Bilias, Yannis and Florios, Kostas and Skouras, Spyros, Exact Computation of Censored Least Absolute Deviations Estimator (December 4, 2018). Available at SSRN: https://ssrn.com/abstract=2372588 or http://dx.doi.org/10.2139/ssrn.2372588

Yannis Bilias

Athens University of Economics and Business ( email )

76 Patission Street
Athens, 104 34
Greece

Kostas Florios

Athens University of Economics and Business ( email )

HOME PAGE: http://sites.google.com/site/kflorios/

Spyros Skouras (Contact Author)

Athens University of Economics and Business - Department of International and European Economic Studies ( email )

GR-10434 Athens
Greece

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