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A Semiparametric Model for Binary Response and Continuous Outcomes Under Index Heteroscedasticity

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Author Info

  • Klein, Roger

    ()
    (Rutgers University)

  • Vella, Francis

    ()
    (Georgetown University)

Abstract

This paper formulates a likelihood-based estimator for a double index, semiparametric binary response equation. A novel feature of this estimator is that it is based on density estimation under local smoothing. While the proofs differ from those based on alternative density estimators, the finite sample performance of the estimator is significantly improved. As binary responses often appear as endogenous regressors in continuous outcome equations, we also develop an optimal instrumental variables estimator in this context. For this purpose, we specialize the double index model for binary response to one with heteroscedasticity that depends on an index different from that underlying the “mean-response”. We show that such (multiplicative) heteroscedasticity, whose form is not parametrically specified, effectively induces exclusion restrictions on the outcomes equation. The estimator developed below exploits such identifying information. We provide simulation evidence on the favorable performance of the estimators and illustrate their use through an empirical application on the determinants, and affect, of attendance at a government financed school.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 2383.

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Length: 64 pages
Date of creation: Oct 2006
Date of revision:
Publication status: published in: Journal of Applied Econometrics, 2009, 24 (5), 735–762
Handle: RePEc:iza:izadps:dp2383

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Keywords: heteroscedasticity; semiparametric; binary response; endogenous treatment;

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References

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  1. Pagan, Adrian & Vella, Frank, 1989. "Diagnostic Tests for Models Based on Individual Data: A Survey," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 4(S), pages S29-59, Supplemen.
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Citations

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Cited by:
  1. Daniel L. Millimet & Rusty Tchernis, 2013. "Estimation Of Treatment Effects Without An Exclusion Restriction: With An Application To The Analysis Of The School Breakfast Program," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 28(6), pages 982-1017, 09.
  2. Chiburis, Richard C., 2010. "Semiparametric bounds on treatment effects," Journal of Econometrics, Elsevier, Elsevier, vol. 159(2), pages 267-275, December.
  3. Farré, Lídia & Vella, Francis, 2006. "Macroeconomic Conditions and the Distribution of Income in Spain," IZA Discussion Papers 2512, Institute for the Study of Labor (IZA).
  4. Melanie Lührmann & Jürgen Maurer, 2007. "Who wears the trousers? A semiparametric analysis of decision power in couples," CeMMAP working papers, Centre for Microdata Methods and Practice, Institute for Fiscal Studies CWP25/07, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
  5. Klein, Roger & Vella, Francis, 2010. "Estimating a class of triangular simultaneous equations models without exclusion restrictions," Journal of Econometrics, Elsevier, Elsevier, vol. 154(2), pages 154-164, February.
  6. Jürgen Maurer & Roger Klein & Francis Vella, 2008. "Subjective Health Assessments and Active Labor Market Participation of Older Men: Evidence from a Semiparametric Binary Choice Model with Nonadditive Correlated Individualspecific Effects," MEA discussion paper series, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy 08169, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
  7. Emran, M. Shahe & Shilpi, Forhad, 2014. "Land Market Restrictions, Women's Labor Force Participation and Wages," MPRA Paper 57989, University Library of Munich, Germany.
  8. Gerry H. Makepeace & Michael J. Peel, 2013. "Combining information from Heckman and matching estimators: testing and controlling for hidden bias," Economics Bulletin, AccessEcon, vol. 33(3), pages 2422-2436.
  9. Maurer, Jürgen, 2009. "Who has a clue to preventing the flu? Unravelling supply and demand effects on the take-up of influenza vaccinations," Journal of Health Economics, Elsevier, Elsevier, vol. 28(3), pages 704-717, May.
  10. Wang, Le, 2012. "Economic transition and college premium in urban China," China Economic Review, Elsevier, Elsevier, vol. 23(2), pages 238-252.
  11. Khan, Shakeeb, 2013. "Distribution free estimation of heteroskedastic binary response models using Probit/Logit criterion functions," Journal of Econometrics, Elsevier, Elsevier, vol. 172(1), pages 168-182.
  12. Aradillas-Lopez, Andres, 2010. "Semiparametric estimation of a simultaneous game with incomplete information," Journal of Econometrics, Elsevier, Elsevier, vol. 157(2), pages 409-431, August.
  13. Kevin E. Staub, 2010. "A causal interpretation of extensive and intensive margin effects in generalized Tobit models," SOI - Working Papers, Socioeconomic Institute - University of Zurich 1012, Socioeconomic Institute - University of Zurich.

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