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A Note on Additive Separability and Latent Index Models of Binary Choice: Representation Results *
Author(s) -
Vytlacil Edward
Publication year - 2006
Publication title -
oxford bulletin of economics and statistics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.131
H-Index - 73
eISSN - 1468-0084
pISSN - 0305-9049
DOI - 10.1111/j.1468-0084.2006.00175.x
Subject(s) - separable space , unobservable , mathematics , representation (politics) , binary number , index (typography) , observable , latent class model , function (biology) , latent variable , econometrics , statistics , computer science , mathematical analysis , physics , arithmetic , quantum mechanics , evolutionary biology , politics , world wide web , political science , law , biology
The standard binary choice model in econometrics has the choice determined by a latent index crossing a threshold. The latent index is almost always assumed to be additively separable in observable and unobservable regressors, and most commonly linear in all regressors. This note provides a class of non‐separable latent index functions which will have equivalent representations as additively separable or linear index functions. These results demonstrate that assuming a linear or additively separable latent index function is less restrictive than previously recognized.