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Abstract
A panel data Tobit model is developed to examine the household purchase process for a
frequently purchased commodity. The proposed model accounts not only for censoring or
sample selectivity, but also the temporal dependence of the purchasing process using household
panel data. The flexible error structure in the model accounts for both state dependence and
household heterogeneity. Empirical findings show that purchase habits of milk persist across
households over time, and most of them come from the household heterogeneity in preferences.
Results also show that advertising increases the purchase quantity and purchase frequency
simultaneously.