Developing a Liu‐type estimator in beta regression model

Abstract

AbstractThe beta regression model is a commonly used when the response variable has the form of fractions or percentages. The maximum likelihood (ML) estimator is used to estimate the regression coefficients of this model. However, it is known that multicollinearity problem affects badly the variance of ML estimator. Therefore, this paper introduces the Liu‐type estimator for the beta regression model to handle the multicollinearity problem. The performance of the proposed (Liu‐type) estimator is compared to the ML estimator and other biased (ridge and Liu) estimators depending on the mean squared error (MSE) criterion by conducting a simulation study and through an empirical application. The results indicated that the proposed estimator outperformed the ML, ridge, and Liu estimators.