Estimation of Type II Tobit Models

Abstract

Type II Tobit models are widely used in various feilds of economics, such as labor economics. These models are also known as models with sample-selection biases. Because of its computational difficulty, the maximum likelihood estimator (MLE) is seldom used to estimate these models, while Heckman's two-step estimator (Heckman [1976 and 1979]) is widely used to estimate these models. However, Heckman's two-step estimotor sometimes performs poorly and the MLE is known to be a better estimator. In this paper, I point out some of the limitation of Heckman's two-step estimator, and I compare the two estimators by the Monte Carlo experiments. I also present the computor program which makes possible to calculate the MLE.