To study the effect of the cost-of-living crisis on household diets, a think tank
commissioned a survey collecting information on household characteristics and
eating habits during a four-week period. As part of this study, a researcher is using
the survey data to model the probability that a household consumed beef during
each of the weeks of the survey. The dependent variable being considered is a
dummy that is equal to 1 if household / consumed beef during week t, being zero
otherwise; the potential regressors are household characteristics such as income,
number of children, and age of the head of the household.
Q) Explain why it is easier to interpret the estimates of a Tobit model than the estimates
of a binary model like the one being considered here.
Q) Since a panel is available, the researcher is considering using a model with fixed
effects. Explain in your own words what is the problem with the use of fixed effects
in a probit model and discuss whether a model with fixed effects would be useful in
this particular application.
