Chapter 9Count Data and Limited Dependent Variables
It is often the case in economics that the dependent variable is not continuous so that OLS estimation is not appropriate. On the one hand, the response may be a count, i.e., it takes only non‐negative integer values. In this case, the most commonly used specifications are the Poisson and the NegBin models. On the other hand, the response may exhibit limited dependence. In this case, one can assume that there exists a continuous non‐observable variable called 
. The value of 
is not observed for some part of the domain or not observed at all. The different cases are depicted in Figure 9.1:
- Figure 9.1a presents the case of a binomial variable (
), which indicates the position of 
relative to a threshold 
, - Figure 9.1b presents the case of an ordinal variable (
), which indicates the position of relative to two thresholds and , - Figure 9.1c presents ...
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