Estimation of Binary Choice Models with Linear Index and Dummy Endogenous Variables
AbstractThis paper presents computationally simple estimators for the index coefficients in a binary choice model with a binary endogenous regressor without relying on distributional assumptions or on large support conditions and yields root-n consistent and asymptotically normal estimators. We develop a multi-step method for estimating the parameters in a triangular, linear index, threshold-crossing model with two equations. Such an econometric model might be used in testing for moral hazard while allowing for asymmetric information in insurance markets. In outlining this new estimation method two contributions are made. The first one is proposing a novel ”matching” estimator for the coefficient on the binary endogenous variable in the outcome equation. Second, in order to establish the asymptotic properties of the proposed estimators for the coefficients of the exogenous regressors in the outcome equation, the results of Powell, Stock and Stoker (1989) are extended to cover the case where the average derivative estimation requires a first step semi-parametric procedure.
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Bibliographic InfoPaper provided by Koc University-TUSIAD Economic Research Forum in its series Koç University-TUSIAD Economic Research Forum Working Papers with number 1202.
Length: 34 pages
Date of creation: Jan 2012
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-01-18 (All new papers)
- NEP-DCM-2012-01-18 (Discrete Choice Models)
- NEP-ECM-2012-01-18 (Econometrics)
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