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TESTING FOR COMPLEMENTARITY WHEN STRATEGIES ARE DICHOTOMOUS
(Click above to download a pdf copy of the paper)
- Abstract: We show that it is not possible to extend
Arora's (1996) reduced form test for the existence of complementarity to
evaluate the relationship between a couple of dichotomous strategies. In
general the correlation among residuals of the regressions of different
strategies on observable firm and market heterogeneity may respond to the
existence of complementarities among these strategies as well as to the
correlation among the unobservable returns of each strategy. We show that in
the case of dichotomous strategies only the latter case is possible because
the existence of complementarities leads to an incoherent simultaneous
discrete response model.
- Co-authors: José C. Pernías (Universidad Jaume I de Castellón).
- Publication: Economics Letters, 106, 28-31, January 2010.
- JEL: C35, O31, O32.
- First version: October 2008.
- Current version: November 2008.
- Funding: None.
- Seminars: None.
- Conferences: None yet .
- Presentations: PPT; PDF.
- Media Citations: None yet.
- Noteworthy: Nothing so far.
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