The Tobit model is a statistical model proposed by James Tobin (1958)[1] to describe the relationship between a non-negative dependent variable y_i and an independent variable (or vector) x_i. The term Tobit was derived from Tobin's name by truncating and adding -it by analogy with the probit model.[2]
The model supposes that there is a latent (i.e. unobservable) variable y_i^*. This variable linearly depends on x_i via a parameter (vector) eta which determines the relationship between the independent variable (or vector) x_i and the latent variable y_i^* (just as in a linear model). In addition, there is a normally distributed error term u_i to capture random influences on this relationship. The observable variable y_i is defined to be equal to the latent variable whenever the latent variable is above zero and zero otherwise.