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Family Background Variables as Instruments for Education in Income Regressions: A Bayesian Analysis

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Author Info

  • Lennart Hoogerheide

    (Econometric Institute, Erasmus University Rotterdam)

  • Joern H. Block

    (CASBEC, Erasmus University Rotterdam, and Technische Universitaet Muenchen, Germany)

  • Roy Thurik

    (CASBEC, Erasmus University Rotterdam, EIM Business and Policy Research, Zoetermeer, and Max Planck Institute of Economics, Jena, Germany)

Abstract

The validity of family background variables instrumenting education in income regressions has been much criticized. In this paper, we use data of the 2004 German Socio-Economic Panel and Bayesian analysis in order to analyze to what degree violations of the strong validity assumption affect the estimation results. We show that, in case of moderate direct effects of the instrument on the dependent variable, the results do not deviate much from the benchmark case of no such effect (perfect validity of the instrument). The size of the bias is in many cases smaller than the standard error of education’s estimated coefficient. Thus, the violation of the strict validity assumption does not necessarily lead to strongly different results when compared to the strict validity case. This provides confidence in the use of family background variables as instruments in income regressions.

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Bibliographic Info

Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 10-075/3.

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Date of creation: 02 Aug 2010
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Handle: RePEc:dgr:uvatin:20100075

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Web page: http://www.tinbergen.nl

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Keywords: education; family background variables; earnings; income; instrumental variables; Bayesian analysis;

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References

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Citations

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Cited by:
  1. Arnold Zellner (posthumously) & Tomohiro Ando & Nalan Basturk & Lennart Hoogerheide & Herman K. van Dijk, 2012. "Bayesian Analysis of Instrumental Variable Models: Acceptance-Rejection within Direct Monte Carlo," Tinbergen Institute Discussion Papers, Tinbergen Institute 12-098/III, Tinbergen Institute.
  2. Fossen, Frank M. & Büttner, Tobias J.M., 2013. "The returns to education for opportunity entrepreneurs, necessity entrepreneurs, and paid employees," Economics of Education Review, Elsevier, Elsevier, vol. 37(C), pages 66-84.
  3. repec:dgr:uvatin:2012095 is not listed on IDEAS
  4. Sanjaya DeSilva & Mohammed Mehrab Bin Bakhtiar, 2011. "Women, Schooling, and Marriage in Rural Philippines," Economics Working Paper Archive, Levy Economics Institute wp_701, Levy Economics Institute.
  5. Block, Joern H. & Miller, Danny & Wagner, Dominik, 2014. "Bayesian methods in family business research," Journal of Family Business Strategy, Elsevier, Elsevier, vol. 5(1), pages 97-104.
  6. Nomen Nescio, 2013. "Nomen Nescio," Tinbergen Institute Discussion Papers, Tinbergen Institute 12-095 not issued, Tinbergen Institute.
  7. repec:dgr:uvatin:2012098 is not listed on IDEAS
  8. Patrinos, Harry Anthony, 2008. "Quality of schooling, returns to schooling and the 1981 vouchers reform in Chile," Policy Research Working Paper Series 4617, The World Bank.
  9. Wang, Le, 2012. "Estimating Returns to Education when the IV Sample is Selective," IZA Discussion Papers 7103, Institute for the Study of Labor (IZA).

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