<p>One possibility is to replace the maximum floor-to-area ratio in your regression with a new variable that represents the reciprocal of that ratio. So if the maximum ratio is 5, the variable would be 0.2. If you do this, you could code observations with no maximum ratio as 0.</p>
<p>This would of course change the way the coefficient for this variable is interpreted, but would address your problem.</p>

CC BY-SA 4.0
2024-03-21T16:24:10.283Z
2024-03-21T16:24:10.283Z
H Rogers
<p>I am investigating the effect of a policy on land price.</p>
<p>The land is transferred by English auctions. My regression looks like this:
<span class="math-container">$$
\ln(y)=\beta_0+\beta_1 x_1+\beta_2 x_2+u, 
$$</span>
where <span class="math-container">$x_1$</span> is the policy change indicator and <span class="math-container">$x_2$</span> is a covariate.</p>
<p>In my dataset, <span class="math-container">$x_2$</span> is the floor-to-area ratio which is the ratio of the building area to the land area. Sometimes, the government requires a upper limit for this ratio for some land so that when people/developers construct a building, they have to follow this requirement. However, not all land has this upper limit. For these land parcels without an upper limit for floor-to-area ratio, their upper limit can be thought as positive infinity. How should I control for this variable in the regression?</p>

<microeconomics><econometrics><regression>
Regression with one independent variable bounded for some observations
Aaron
# Regression with one independent variable bounded for some observations

(Asked by: username_0 on 2024-03-20)

I am investigating the effect of a policy on land price.

The land is transferred by English auctions. My regression looks like this:
$$
\ln(y)=\beta\_0+\beta\_1 x\_1+\beta\_2 x\_2+u,
$$
where $x\_1$ is the policy change indicator and $x\_2$ is a covariate.

In my dataset, $x\_2$ is the floor-to-area ratio which is the ratio of the building area to the land area. Sometimes, the government requires a upper limit for this ratio for some land so that when people/developers construct a building, they have to follow this requirement. However, not all land has this upper limit. For these land parcels without an upper limit for floor-to-area ratio, their upper limit can be thought as positive infinity. How should I control for this variable in the regression?

**Tags:** microeconomics, econometrics, regression


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## 1 answers

### Answer by username_1 on 2024-03-21. Score: 1

One possibility is to replace the maximum floor-to-area ratio in your regression with a new variable that represents the reciprocal of that ratio. So if the maximum ratio is 5, the variable would be 0.2. If you do this, you could code observations with no maximum ratio as 0.

This would of course change the way the coefficient for this variable is interpreted, but would address your problem.


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