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Title:On interaction effects: The case of heckit and two-part models PDF Logo
Authors:Frondel, Manuel
Vance, Colin
Issue Date:2012
Series/Report no.:Ruhr Economic Papers 309
Abstract:Interaction effects capture the impact of one explanatory variable x1 on the marginal effect of another explanatory variable x2. To explore interaction effects, socalled interaction terms x1x2 are typically included in estimation specifications. While in linear models the effect of a marginal change in the interaction term is equal to the interaction effect, this equality generally does not hold in non-linear specifi cations (AI, NORTON, 2003). This paper provides for a general derivation of interaction effects in both linear and non-linear models and calculates the formulae of the interaction effects resulting from HECKMAN's sample selection model as well as the Two-Part Model, two regression models commonly applied to data with a large fraction of either missing or zero values in the dependent variable, respectively. Drawing on a survey of automobile use from Germany, we argue that while it is important to test for the significance of interaction effects, their size conveys limited substantive content. More meaningful, and also more easy to grasp, are the conditional marginal effects pertaining to two variables that are assumed to interact.
Subjects:Truncated regression models
interaction terms
JEL:C34
Persistent Identifier of the first edition:doi:10.4419/86788356
ISBN:978-3-86788-356-6
Document Type:Working Paper
Appears in Collections:Ruhr Economic Papers, RWI
Publikationen von Forscherinnen und Forschern des RWI

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