Estimating and Testing Non-Linear Models Using Instrumental Variables
AbstractIn many empirical studies, researchers seek to estimate causal relationships using instrumental variables. When only one valid instrumental variable is available, researchers are limited to estimating linear models, even when the true model may be non-linear. In this case, ordinary least squares and instrumental variable estimators will identify different weighted averages of the underlying marginal causal effects even in the absence of endogeneity. As such, the traditional Hausman test for endogeneity is uninformative. We build on this insight to develop a new test for endogeneity that is robust to any form of non-linearity. Notably, our test works well even when only a single valid instrument is available. This has important practical applications, since it implies that researchers can estimate a completely unrestricted non-linear model by OLS, and then use our test to establish whether those OLS estimates are consistent. We re-visit a few recent empirical examples to show how the test can be used to shed new light on the role of non-linearity.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University of Western Ontario, CIBC Centre for Human Capital and Productivity in its series University of Western Ontario, CIBC Centre for Human Capital and Productivity Working Papers with number 20112.
Date of creation: 2011
Date of revision:
Contact details of provider:
Postal: CIBC Centre for Human Capital and Productivity, Social Science Centre, University of Western Ontario, London, Ontario, Canada N6A 5C2
Phone: 519-661-2111 Ext.85244
Web page: http://economics.uwo.ca/research/research_papers/cibc_workingpapers.html
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-04-17 (All new papers)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Lance Lochner & Enrico Moretti, 2001.
"The Effect of Education on Crime: Evidence from Prison Inmates, Arrests, and Self-Reports,"
NBER Working Papers
8605, National Bureau of Economic Research, Inc.
- Lance Lochner & Enrico Moretti, 2004. "The Effect of Education on Crime: Evidence from Prison Inmates, Arrests, and Self-Reports," American Economic Review, American Economic Association, vol. 94(1), pages 155-189, March.
- Mogstad, Magne & Wiswall, Matthew, 2010. "Linearity in Instrumental Variables Estimation: Problems and Solutions," IZA Discussion Papers 5216, Institute for the Study of Labor (IZA).
- Katrine V. L�ken & Magne Mogstad & Matthew Wiswall, 2012.
"What Linear Estimators Miss: The Effects of Family Income on Child Outcomes,"
American Economic Journal: Applied Economics,
American Economic Association, vol. 4(2), pages 1-35, April.
- Løken, Katrine Vellesen & Mogstad, Magne & Wiswall, Matthew, 2011. "What Linear Estimators Miss: The E ects of Family Income on Child Outcomes," Working Papers in Economics 02/11, University of Bergen, Department of Economics.
- Sergi Jiménez-Martín & Cristina Vilaplana Prieto, 2013. "Informal Care and intergenerational transfers in European Countries," Working Papers 2013-25, FEDEA.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.