Economic Motivations for Limited Dependent and Qualitative Variable Models*

The greater availability of survey data, a succession of papers dealing with the statistical issues arising from the analysis of such data and the appearance of software packages, such as UMDEP, have led to a remarkable increase in the application of limited dependent and qualitative variable models in economics. Economic analysis of the behaviour of individual decision makers often leads to models which are of a limited dependent or qualitative variable nature. This paper attempts to show how the use of these models naturally arises from the more general framework of modifications to traditional economic optimization problems.