models binary

RAUSP Management Journal

Purpose The purpose of this study is to account for a recent non-mainstream econometric approach using microdata and how it can inform research in business administration. More specifically, the paper draws from the applied microeconometric literature stances in favor of fitting Poisson regression with robust standard errors rather than the OLS linear regression of a log-transformed dependent variable. In addition, the authors point to the appropriate Stata coding and take into account the possibility of failing to check for the existence of the estimates – convergency issues – as well as being sensitive to numerical problems. Design/methodology/approach The author details the main issues with the log-linear model, drawing from the applied econometric literature in favor of estimating multiplicative models for non-count data. Then, he provides the Stata commands and illustrates the differences in the coefficient and standard errors between both OLS and Poisson models using the health expenditure dataset from the RAND Health Insurance Experiment (RHIE). Findings The results indicate that the use of Poisson pseudo maximum likelihood estimators yield better results that the log-linear model, as well as other alternative models, such as Tobit and two-part models. Originality/value The originality of this study lies in demonstrating an alternative microeconometric technique to deal with positive skewness of dependent variables.

Estimating Poisson pseudo-maximum-likelihood rather than log-linear model of a log-transformed dependent variable