What do instrumental variable models deliver with discrete dependent variables?
We study models with discrete endogenous variables and compare the use of two stage least squares (2SLS) in a linear probability model with bounds analysis using a nonparametric instrumental variable model. 2SLS has the advantage of providing an easy to compute point estimator of a slope coefficient which can be interpreted as a local average treatment effect (LATE). However, the 2SLS estimator does not measure the value of other useful treatment effect parameters without invoking untenable restrictions. The nonparametric instrumental variable (IV) model has the advantage of being weakly restrictive, so more generally applicable, but it usually delivers set identification. Nonetheless it can be used to consistently estimate bounds on many parameters of interest including, for example, average treatment effects. We illustrate using data from Angrist & Evans (1998) and study the effect of family size on female employment. This October 2015 version corrects an error in the paper, as explained in footnote 1. The original version of the working paper is available here.
|Date of creation:||18 Mar 2013|
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- Victor Chernozhukov & Sokbae Lee & Adam Rosen, 2009.
"Intersection Bounds: estimation and inference,"
CeMMAP working papers
CWP19/09, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
- Victor Chernozhukov & Sokbae Lee & Adam Rosen, 2012. "Intersection bounds: estimation and inference," CeMMAP working papers CWP33/12, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
- Victor Chernozhukov & Sokbae Lee & Adam Rosen, 2011. "Intersection bounds: estimation and inference," CeMMAP working papers CWP34/11, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
- Azeem M. Shaikh & Edward J. Vytlacil, 2011. "Partial Identification in Triangular Systems of Equations With Binary Dependent Variables," Econometrica, Econometric Society, vol. 79(3), pages 949-955, 05.
- Yingying Dong & Arthur Lewbel & Thomas Tao Yang, 2012. "Comparing Features of Convenient Estimators for Binary Choice Models With Endogenous Regressors," Boston College Working Papers in Economics 789, Boston College Department of Economics, revised 15 May 2012.
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