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A Note on Parametric and Nonparametric Regression in the Presence of Endogenous Control Variables

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  • Markus Frölich

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Abstract

This note argues that nonparametric regression not only relaxes functional form assumptions vis-a-vis parametric regression, but that it also permits endogenous control variables. To control for selection bias or to make an exclusion restriction in instrumental variables regression valid, additional control variables are often added to a regression. If any of these control variables is endogenous, OLS or 2SLS would be inconsistent and would require further instrumental variables. Nonparametric approaches are still consistent, though. A few examples are examined and it is found that the asymptotic bias of OLS can indeed be very large.

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Bibliographic Info

Paper provided by Department of Economics, University of St. Gallen in its series University of St. Gallen Department of Economics working paper series 2006 with number 2006-11.

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Length: 14 pages
Date of creation: May 2006
Date of revision:
Handle: RePEc:usg:dp2006:2006-11

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Keywords: Endogeneity; nonparametric regression; instrumental variables;

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References

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  1. Joshua Angrist & Victor Lavy, 1999. "New Evidence on Classroom Computers and Pupil Learning," NBER Working Papers 7424, National Bureau of Economic Research, Inc.
  2. A. Smith, Jeffrey & E. Todd, Petra, 2005. "Does matching overcome LaLonde's critique of nonexperimental estimators?," Journal of Econometrics, Elsevier, vol. 125(1-2), pages 305-353.
  3. Dan A. Black & Jeffrey Smith, 2003. "How Robust is the Evidence on the Effects of College Quality? Evidence From Matching," University of Western Ontario, CIBC Centre for Human Capital and Productivity Working Papers 20033, University of Western Ontario, CIBC Centre for Human Capital and Productivity.
  4. Lorraine Dearden & Javier Ferri & Costas Meghir, 1998. "The effect of school quality on educational attainment and wages," IFS Working Papers W98/03, Institute for Fiscal Studies.
  5. Heckman, James J & Smith, Jeffrey A, 1999. "The Pre-programme Earnings Dip and the Determinants of Participation in a Social Programme. Implications for Simple Programme Evaluation Strategies," Economic Journal, Royal Economic Society, vol. 109(457), pages 313-48, July.
  6. Michael Lechner, 2005. "Some practical issues in the evaluation of heterogeneous labour market programmes by matching methods," Labor and Demography 0505006, EconWPA.
  7. Guido W. Imbens & Whitney K. Newey, 2002. "Identification and Estimation of Triangular Simultaneous Equations Models Without Additivity," NBER Technical Working Papers 0285, National Bureau of Economic Research, Inc.
  8. Hanushek, Eric A, 1986. "The Economics of Schooling: Production and Efficiency in Public Schools," Journal of Economic Literature, American Economic Association, vol. 24(3), pages 1141-77, September.
  9. Guido W. Imbens, 2004. "Nonparametric Estimation of Average Treatment Effects Under Exogeneity: A Review," The Review of Economics and Statistics, MIT Press, vol. 86(1), pages 4-29, February.
  10. Victor Chernozhukov & Christian Hansen, 2005. "An IV Model of Quantile Treatment Effects," Econometrica, Econometric Society, vol. 73(1), pages 245-261, 01.
  11. James Heckman & Hidehiko Ichimura & Jeffrey Smith & Petra Todd, 1998. "Characterizing Selection Bias Using Experimental Data," Econometrica, Econometric Society, vol. 66(5), pages 1017-1098, September.
  12. Hoxby, Caroline Minter, 1996. "How Teachers' Unions Affect Education Production," The Quarterly Journal of Economics, MIT Press, vol. 111(3), pages 671-718, August.
  13. James J. Heckman & Jeffrey A. Smith, 1999. "The Pre-Program Earnings Dip and the Determinants of Participation in a Social Program: Implications for Simple Program Evaluation Strategies," NBER Working Papers 6983, National Bureau of Economic Research, Inc.
  14. Paul Glewwe & Michael Kremer & Sylvie Moulin & Eric Zitzewitz, 2004. "Retrospective vs. prospective analyses of school inputs: The case of flip charts in kenya," Natural Field Experiments 00256, The Field Experiments Website.
  15. Heckman, James J & Ichimura, Hidehiko & Todd, Petra, 1998. "Matching as an Econometric Evaluation Estimator," Review of Economic Studies, Wiley Blackwell, vol. 65(2), pages 261-94, April.
  16. Markus Frölich, 2004. "Finite-Sample Properties of Propensity-Score Matching and Weighting Estimators," The Review of Economics and Statistics, MIT Press, vol. 86(1), pages 77-90, February.
  17. Victor Lavy, 2002. "Evaluating the Effect of Teachers' Group Performance Incentives on Pupil Achievement," Journal of Political Economy, University of Chicago Press, vol. 110(6), pages 1286-1317, December.
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Cited by:
  1. Miana Plesca & Jeffrey Smith, 2007. "Evaluating multi-treatment programs: theory and evidence from the U.S. Job Training Partnership Act experiment," Empirical Economics, Springer, vol. 32(2), pages 491-528, May.
  2. Ciaian, Pavel & Falkowski, Jan & Kancs, d'Artis & Pokrivcak, Jan, 2011. "Productivity and Credit Constraints Firm-Level Evidence from Propensity Score Matching," Working Papers 117484, Factor Markets, Centre for European Policy Studies.
  3. Blundell, Richard & Costa Dias, Monica, 2008. "Alternative Approaches to Evaluation in Empirical Microeconomics," IZA Discussion Papers 3800, Institute for the Study of Labor (IZA).
  4. Bourdon, Jean & Michaelowa, Katharina & Frölich, Markus, 2007. "Teacher shortages, teacher contracts and their impact on education in Africa," HWWI Research Papers 2-10, Hamburg Institute of International Economics (HWWI).
  5. Frölich, Markus & Lechner, Michael, 2006. "Exploiting Regional Treatment Intensity for the Evaluation of Labour Market Policies," IZA Discussion Papers 2144, Institute for the Study of Labor (IZA).
  6. Frölich, Markus & Melly, Blaise, 2008. "Unconditional Quantile Treatment Effects under Endogeneity," IZA Discussion Papers 3288, Institute for the Study of Labor (IZA).
  7. Pavel Ciaian & Jan Fałkowski & D’Artis Kancs, 2012. "Productivity and credit constraints: A firm-level propensity score evidence for agricultural farms in central and east European countries," Acta Oeconomica, Akadémiai Kiadó, Hungary, vol. 62(4), pages 459-487, December.
  8. Tamini, Lota D., 2009. "Agri-Environment Advisory Activities Effects on Best Management Practices Adoption," MPRA Paper 18961, University Library of Munich, Germany.

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