rivista italiana di economia demografia e statistica - Sieds

Rivista Italiana di Economia Demografia e Statistica 57
contest, this procedure involves a set of probit models, one for each subgroup other
than the tenants at market price: the tenant status is the dependent variable; we include
conventional socio-economic characteristics as explanatory variables. The coefficients
found for the inverse Mill’s ratio are then included into the regression model for rents.
As for full rent tenants vs owners, here is the formalisation. Let R * w be the latent
variable indicating the indirect utility of the full rent tenant condition:
R * w = α 0 + α 1m Z mw + e w , e w ~N (0,1) (1)
where w is a generic household, Z w is a vector of explanatory variables and α is a
vector of parameters to be estimated and e w is a random term. Since R* is not
observable, the dependent variable R takes value 1 (tenant at market prices condition)
if R*≥0 and takes value 0 (owning condition) if R*