Endogenous variables in non-linear models with mixed effects: Inconsistence under perfect identification conditions?
This paper examines the consequences of introducing a normally distributed effect into a system where the dependent variable is ordered and the explanatory variable is ordered and endogenous. Using simulation techniques we show that a naïve bivariate ordered probit estimator which fails to take a mixed effect into account will result in inconsistent estimates even when identification conditions are optimal. Our results suggest this finding only applies to non-linear endogenous systems.
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