Limited dependent variables (LDV) models derived from economic theory frequently do not impose theoretically justifiable restrictions on correlations among the unobservables. At present, however, classical estimation of LDV models with freely correlated unobservables is generally infeasible because it requires the evaluation of multi-dimensional integrals. Of particular interest are such problems that arise in panel LDV models and LDV models with measurement errors. This project develops and implements simulation methods for numerical integration and implementation to facilitate solution of the previously intractable computational problems. This is achieved by developments along three directions: First, the EM algorithm of Hartley (1958) is combined with simulation methods to overcome discontinuity problems in estimators studied. Second, techniques are provided to simulate directly from conditional densities. These techniques are important for the implementation of the Method of Simulated Moments (McFadden, 1988). Third, new simulation estimators are devised that are continuous in the unknown parameter vector. These econometric methods are employed to analyze three classes of economic problems. First, determinants of incidence and duration of external debt crises and IMF conditionality programs in LDC's are studied using panel dynamic LDV models. New solutions to the long-standing problem of "initial values" are provided by estimating the conditional distribution of the initial values. Second, collective bargaining models are used to study the occurrence of strikes. These issues are analyzed econometrically by LDV models with imperfectly measured qualitative and continuous variables. Finally, game-theoretic models of tacitly collusive behavior are tested through econometrically similar methods. These working practical models will illustrate the utility and tractability of the new methods employed.
