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Estimation of Binary Choice Models with Linear Index and Dummy Endogenous Variables

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  • Nese Yildiz

    ()
    (University of Rochester, Department of Economics)

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    Abstract

    This 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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    File URL: http://eaf.ku.edu.tr/sites/eaf.ku.edu.tr/files/erf_wp_1202.pdf
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    Bibliographic Info

    Paper provided by Koc University-TUSIAD Economic Research Forum in its series Koç University-TUSIAD Economic Research Forum Working Papers with number 1202.

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    Length: 34 pages
    Date of creation: Jan 2012
    Date of revision:
    Handle: RePEc:koc:wpaper:1202

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    1. Arthur Lewbel, 1999. "Semiparametric Qualitative Response Model Estimation with Unknown Heteroskedasticity or Instrumental Variables," Boston College Working Papers in Economics 454, Boston College Department of Economics.
    2. Joseph G. Altonji & Rosa L. Matzkin, 2001. "Panel Data Estimators for Nonseparable Models with Endogenous Regressors," NBER Technical Working Papers 0267, National Bureau of Economic Research, Inc.
    3. Jun, Sung Jae, 2009. "Local structural quantile effects in a model with a nonseparable control variable," Journal of Econometrics, Elsevier, vol. 151(1), pages 82-97, July.
    4. Horowitz, Joel & Hardle, Wolfgang, 1994. "Direct Semiparametric Estimation of Single-Index Models With Discrete Covariates," Working Papers 94-22, University of Iowa, Department of Economics.
    5. Chen, Songnian, 1999. "Semiparametric Estimation Of A Location Parameter In The Binary Choice Model," Econometric Theory, Cambridge University Press, vol. 15(01), pages 79-98, February.
    6. Lingjie Ma & Roger Koenker, 2004. "Quantile regression methods for recursive structural equation models," CeMMAP working papers CWP01/04, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
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