This paper outlines a two-stage technique for estimation and inference in probit models with structural group effects. The structural group specification belongs to a broader class of random components models. In particular, individuals in a given group share a common component in the specification of the conditional mean of a latent variable. For a number of computational reasons, existing random-effects models are impractical for estimation and inference in this type of problem. Our two-stage estimator provides an easily estimable alternative to the random effect specification. In addition, we conduct a Monte Carlo simulation comparing the performance of alternative estimators, and find that the two-stage estimator is superior -- both in terms of estimation and inference -- to traditional estimators.
*Published:
Borjas, George J. and Glenn T. Sueyoshi. "A Two-Stage Estimator For Probit Models With Structural Group Effects," Journal of Econometrics, 1994, v64(1/2), 165-182.
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