st: Interaction effects

[Lorenzo Ciari <lorenzo.ciari@learlab.com>]

Dear users,
I have a question about the use of interaction effects. I am estimating 
a probit model and my dependent variable is entry (0-1) in a given 
market. I estimate the model using form level data, so for each firm I 
observe whether it enters or not a market (I have multiple markets): I 
want to test whether entry depends on a given variable (call it COMP) 
and see whether the effect of COMP on entry is particularly strong for 
firsm with certain characteristics (suppose the characteristics SIZE).

1)  Question 1: if I want to test the hipothesis that COMP has no effect 
for values of SIZE lower that X, can I create a dummy = 1 for firms with 
size<X and then estimate a model with COMP, SIZE (continuous variable) 
and the interaction between (COMP) and the dummy? Can I interpret the 
interaction coefficient as in OLS (I wouldn't know how to use AI-Norton 
inteff command within this framework, as I do not interact SIZE with 
COMP, but the new created dummy....

2) Question2: can I, instead, put SIZE in my regression and the generate 
three dummies, one for low values of SIZE, one for medium and one for 
high values. Then I would interact COMP with the three dummies and 
estimate a model with three separate coefficients for COMP, that is 
COMPlow, COMPmedium and COMPhigh...

Thanks for help, if possible.
lorenzo

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