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Bayes' Estimates of the Double Hurdle Model in the Presence of Fixed Costs

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Abstract

We present a model of market adoption (participation) where the presence of non-negligible fixed costs leads to non-zero censoring of the traditional double-hurdle regression. Fixed costs arise due to household resources that must be devoted a priori to the decision to participate in the market. These costs-usually a cost of time-motivate two-step decision-making and focus attentions on the minimum-efficient scale of operations (the minimum amount of milk sales) at which market entry becomes viable. This focus, in turn, motivates a non-zero-censored Tobit regression estimated through routine application of Markov chain Monte Carlo Methods.

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WP 2002-42 December 2002

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2002-12

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Charles H. Dyson School of Applied Economics and Management, Cornell University

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market participation; fixed costs; double-hurdle model; censored regression

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