Qualitative Response Models: A Survey

TLDR: The most important developments in econometrics in the past ten years have occurred in the area of qualitative response (QR) models as discussed by the authors, and there are two factors which explain the recent upsurge of QR models in economic applications: 1) Economists deal with many variables, thus necessitating the need to formulate more complex models involving more than one discrete variable and more than two responses, as well as using more independent variables.

Abstract: One of the most important developments in econometrics in the past ten years has occurred in the area of qualitative response (QR) models. There are two factors which explain the recent upsurge of QR models in economic applications: 1) Economists deal with many variables, thus necessitating the need to formulate more complex models involving more than one discrete variable and more than two responses, as well as using more independent variables. The estimation of such complex QR models has only recently been made possible by the development of advanced computer technology. 2) An increasingly large number of sample surveys have been recently conducted and their results made readily available on magnetic tapes. This paper will present the basic facts about QR models. It starts with the discussion of the simplest model - the model for a univariate dichotomous dependent variable, and then moves on to multi-response models. The following three problems are discussed: 1) how to specify a model which is consistent with economic theory and which is at the same time statistically manageable; 2) how to estimate and test hypotheses on the parameters of a model; and 3) what criteria to use for choosing among competing models.