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Modelling with Discretized Ordered Choice Covariates

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  • Felix Chan
  • Ágoston Reguly
  • László Mátyás

Abstract

This paper deals with econometric models where some (or all) explanatory variables (or covariates) are observed as discretized ordered choices. Such variables are in theory continuous, but in this form are not observed at all, their distribution is unknown, and instead only a set of discrete choices are observed. We explore how such variables influence inference, more precisely, we show that this leads to a very special form of measurement error, and consequently to endogeneity bias. We then propose appropriate sub-sampling and instrumental variables (IV) estimation methods to deal with the problem.

Suggested Citation

  • Felix Chan & Ágoston Reguly & László Mátyás, 2019. "Modelling with Discretized Ordered Choice Covariates," CEU Working Papers 2019_2, Department of Economics, Central European University.
    • Handle: RePEc:ceu:econwp:2019_2
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    References listed on IDEAS

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