Nonlinear Tobit Decomposition

Abstract This paper extends the decomposition of marginal effects suggested by McDonald and Moffitt [The Review of Economics and Statistics 62: 318-321, 1980] to a nonlinear tobit model, considering the increasing use of tobit analysis and substantive economic implications of the decomposition. The decomposition provides more information than is commonly realized based on the coefficients obtained from fitting a tobit model. In this paper the generalized decomposition of marginal effects is derived and the effects in the decomposition are expressed in explicit and closed form. A simulation study illustrates the application of the nonlinear decomposition using a simple nonlinear consumption function, along with maximum likelihood estimation on the parameters of the nonlinear tobit regression model.