Exact Computation of Censored Least Absolute Deviations Estimator
47 Pages Posted: 29 Dec 2013 Last revised: 7 Dec 2018
Date Written: December 4, 2018
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
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