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Endogeneity in semiparametric binary response models

Author

Listed:
  • Richard Blundell
  • James L. Powell

Abstract

This paper develops and implements semiparametric methods for estimating binary response (binary choice) models withcontinuous endogenous regressors. It extends the existing literature on semiparametric estimation in single index binary response models to the case of endogenous regressors.It develops a control function approach to accounting for endogeneity in triangularand fully simulataneous binary response models. An application is given to the case of estimating the income effect in a labor market participationproblem using a large micro data set from the British FES. The semiparametric estimator is found to perform well detecting a significant attenuation bias. The proposed estimator is contrasted to the corresponding Probit and Linear Probability specifications.

Suggested Citation

  • Richard Blundell & James L. Powell, 2001. "Endogeneity in semiparametric binary response models," CeMMAP working papers 05/01, Institute for Fiscal Studies.
    • Handle: RePEc:azt:cemmap:05/01
    DOI: 10.1920/wp.cem.2001.0501
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    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities
    • C35 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

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