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Endogeneity in semiparametric binary response models

  • Richard Blundell

    ()

    (Institute for Fiscal Studies and IFS and UCL)

  • James Powell

    ()

    (Institute for Fiscal Studies and University of California, Berkeley)

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 triangular and fully simulataneous binary response models. An application is given to the case of estimating the income effect in a labor market participation problem 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.

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File URL: http://www.cemmap.ac.uk/wps/cwp0501.pdf
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Paper provided by Centre for Microdata Methods and Practice, Institute for Fiscal Studies in its series CeMMAP working papers with number CWP05/01.

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Length: 50 pp.
Date of creation: 01 Jul 2001
Date of revision:
Handle: RePEc:ifs:cemmap:05/01
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  1. Whitney Newey & James Powell & Francis Vella, 1998. "Nonparametric Estimation of Triangular Simultaneous Equations Models," Working papers 98-16, Massachusetts Institute of Technology (MIT), Department of Economics.
  2. James J. Heckman, 1977. "Dummy Endogenous Variables in a Simultaneous Equation System," NBER Working Papers 0177, National Bureau of Economic Research, Inc.
  3. Richard Blundell & James Powell, 2001. "Endogeneity in nonparametric and semiparametric regression models," CeMMAP working papers CWP09/01, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
  4. Arthur Lewbel & Linton, Oliver Linton, 1998. "Nonparametric Censored Regression," Cowles Foundation Discussion Papers 1186, Cowles Foundation for Research in Economics, Yale University.
  5. Blundell, Richard & Smith, Richard J., 1994. "Coherency and estimation in simultaneous models with censored or qualitative dependent variables," Journal of Econometrics, Elsevier, vol. 64(1-2), pages 355-373.
  6. Ahn, Hyungtaik & Powell, James L., 1993. "Semiparametric estimation of censored selection models with a nonparametric selection mechanism," Journal of Econometrics, Elsevier, vol. 58(1-2), pages 3-29, July.
  7. Richard W. Blundell & Richard J. Smith, 1989. "Estimation in a Class of Simultaneous Equation Limited Dependent Variable Models," Review of Economic Studies, Oxford University Press, vol. 56(1), pages 37-57.
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