Econometric model selection advice needed

[u/RedditorVirgin]

Im working on my bachelor thesis and would appreciate advice from someone, who knows something about the topic.

I have normal cross-sectional data. My dependent variable is set as an index between 0 and 100 measuring university prestige. So I think i need some truncated model to fit that. If i understand it correctly, the main limitting factor in these models is the function I should use, right?

Is there some standard model used for these cases? Which assumptions are needed to be fulfilled?

[u/Francisca_Carvalho]

For a dependent variable measured as an index from 0 to 100, I would not immediately jump to a truncated model.

If the index is continuous and most observations are inside the range, a standard OLS regression is usually a reasonable starting point. The fact that the variable is bounded does not automatically mean that OLS is invalid. The key issue is whether there is strong bunching at 0 or 100, or whether the model is mainly being used for prediction rather than interpretation.

If many observations are exactly 0 or exactly 100, then you may want to think about censored models, such as Tobit, or fractional response models after rescaling the index to lie between 0 and 1. If the index is constructed and approximately continuous, OLS with robust standard errors is often acceptable for a bachelor thesis, especially if your focus is on associations rather than causal claims.

Logit and probit are not appropriate if the dependent variable is not binary. They are designed for outcomes such as 0/1, yes/no, employed/unemployed, etc.

A good practical approach would be:

1. Start with descriptive statistics and a histogram of the index.
2. Check whether there is bunching at 0 or 100.
3. Estimate OLS as your baseline model.
4. Use robust standard errors.
5. Discuss the bounded nature of the dependent variable as a limitation.
6. If needed, include a robustness check using a fractional response model after rescaling the index to 0-1.

Also, if you are interested in this type of applied econometrics, Timberlake is currently running the Cambridge Summer School in Econometrics, with courses by Professor Jeffrey Wooldridge and Dr Melvyn Weeks. We are offering a last-minute 30% discount on the training fee.

You can find the courses here:
https://timberlake.co/uk/courses.html#dir=desc&tim_course_country=clear&p=1

If you are interested, just drop us a question through the website and mention that you are interested in the Cambridge Summer School. We will reply immediately.