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Weak Identification in Probit Models with Endogenous Covariates

  • Jean-Marie Dufour
  • Joachim Wilde


    (Universitaet Osnabrueck)

Weak identification is a well known topic for linear multiple equation models. However, little is known whether this problem also matters for probit models with endogenous covariates. Therefore, the behaviour of the usual z-statistic in case of weak identification is analysed in a simulation study. It shows large size distortions. However, a new puzzle is found: The magnitude of the size distortion depends heavily on the parameter value that is tested. Alternatively the LR-statistic was calculated which is known to be more robust against weak identification in case of linear multiple equation models. The same seems to be true for probit equations. No size distortions are found. However, medium undersizing is observed.

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Paper provided by Institute of Empirical Economic Research in its series Working Papers with number 95.

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Length: 11
Date of creation: 01 Mar 2013
Date of revision: 28 Feb 2013
Handle: RePEc:iee:wpaper:wp0095
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