Two-Part Models for Fractional Responses Defined as Ratios of Integers

WIFO Working Papers, No. 472

26 Pages Posted: 19 Jun 2014

See all articles by Harald Oberhofer

Harald Oberhofer

Vienna University of Economics and Business - Department of Economics; Austrian Institute of Economic Research (WIFO)

Michael Pfaffermayr

University of Innsbruck - Department of Economics; Austrian Institute of Economic Research

Date Written: June 12, 2014

Abstract

This paper discusses two alternative two-part models for fractional response variables that are defined as ratios of integers. The first two-part model assumes a Binomial distribution and known group size. It nests the one-part fractional response model proposed by Papke and Wooldridge (1996) and thus, allows to apply Wald, LM and/or LR tests in order to discriminate between the two models. The second model extends the first one by allowing for overdispersion. Monte Carlo studies reveal that, for both models, the proposed tests are equipped with sufficient power and are properly sized. Finally, we demonstrate the usefulness of the proposed two-part models for data on the 401(k) pension plan participation rates used in Papke and Wooldridge (1996).

Keywords: ractional response models for ratios of integers, one-part versus two-part models, Wald test, LM test, LR test

JEL Classification: C12, C15, C25, C52

Suggested Citation

Oberhofer, Harald and Pfaffermayr, Michael, Two-Part Models for Fractional Responses Defined as Ratios of Integers (June 12, 2014). WIFO Working Papers, No. 472, Available at SSRN: https://ssrn.com/abstract=2456368 or http://dx.doi.org/10.2139/ssrn.2456368

Harald Oberhofer (Contact Author)

Vienna University of Economics and Business - Department of Economics ( email )

Welthandelsplatz 1
A-1020 Vienna
Austria

Austrian Institute of Economic Research (WIFO) ( email )

P.O. Box 91
Wien, A-1103
Austria

Michael Pfaffermayr

University of Innsbruck - Department of Economics ( email )

Universitaetsstrasse 15
A-6020, Innsbruck
Austria
+43 512 507 7359 (Phone)

HOME PAGE: http://homepage.uibk.ac.at/~c43236/

Austrian Institute of Economic Research ( email )

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Wien, A-1103
Austria
+43 1 798 26 01-253 (Phone)
+43 1 798 93 86 (Fax)

HOME PAGE: http://www.wifo.ac.at/Michael.Pfaffermayr/

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