In this paper we examine theoretically and by simulation whether or not unobserved heterogeneity independent of the included regressors is really an issue in logit, probit and loglog models with both binary and fractional data. We found that unobserved heterogeneity: (i) produces an attenuation...

Binary response index models may be affected by several forms of misspecification, which range from pure functional form problems (e.g. incorrect specification of the link function, neglected heterogeneity, heteroskedasticity) to various types of sampling issues (e.g. covariate measurement...