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Cross-Validation Selection of Regularisation Parameter(s) for Semiparametric Transformation Models

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  • Senay SOKULLU
  • Sami STOULI

Abstract

We propose cross-validation criteria for the selection of regularisation parameter(s) in the semiparametric instrumental variable transformation model proposed in Florens, J.-P., and S. Sokullu [2016]. In the presence of an endogenous regressor, this model is characterized by the need to choose two regularisation parameters, one for the structural function and one for the transformation of the outcome. We consider two-step and simultaneous criteria, and analyze the finite-sample performance of the estimator using the corresponding regularisation parameters by means of several Monte-Carlo simulations. Our numerical experiments show that simultaneous selection of regularisation parameters provides significant improvements in the performance of the estimator. We also apply our methods to the choice of regularisation parameters in the estimation of two-sided network effects in the German magazine industry.

Suggested Citation

  • Senay SOKULLU & Sami STOULI, 2017. "Cross-Validation Selection of Regularisation Parameter(s) for Semiparametric Transformation Models," Annals of Economics and Statistics, GENES, issue 128, pages 67-108.
    • Handle: RePEc:adr:anecst:y:2017:i:128:p:67-108
    DOI: 10.15609/annaeconstat2009.128.0067
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    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C26 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Instrumental Variables (IV) Estimation
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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