ECONOMETRIC METHODS FOR FRACTIONAL RESPONSE VARIABLES WITH AN APPLICATION TO 401(K) PLAN PARTICIPATION RATES

We develop attractive functional forms and simple quasi-likelihood est imation methods for regression models with a fractional dependent vari able. Compared with log-odds type procedures, there is no difficulty i n recovering the regression function for the fractional variable, and there is no need to use ad hoc transformations to handle data at the e xtreme values of zero and one. We also offer some new, robust specific ation tests by nesting the legit or probit function in a more general functional form. We apply these methods to a data set of employee part icipation rates in 401(k) pension plans.