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Endogenous Variables in Binary Choice Models: Some Insights for Practitioners

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  • Bontemps, Christophe
  • Nauges, Céline

Abstract

The main purpose of this article is to offer practical insights to econometricians wanting to estimate binary choice models featuring a continuous endogenous regressor. We use simulated data to investigate the performance of Lewbel’s special regressor method, an estimator that is relatively easy to implement and that relies on different identification conditions than more common control function and Maximum Likelihood estimators. Our findings confirm that the large support condition is crucial for the special regressor method to perform well and that one should be very cautious when implementing heteroscedasticity corrections and trimming since these could severely bias the final estimates.

Suggested Citation

  • Bontemps, Christophe & Nauges, Céline, 2017. "Endogenous Variables in Binary Choice Models: Some Insights for Practitioners," TSE Working Papers 17-855, Toulouse School of Economics (TSE).
    • Handle: RePEc:tse:wpaper:32153
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    References listed on IDEAS

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    1. Arthur Lewbel & Yingying Dong & Thomas Tao Yang, 2012. "Comparing features of convenient estimators for binary choice models with endogenous regressors," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 45(3), pages 809-829, August.
    2. Thierry Magnac & Eric Maurin, 2008. "Partial Identification in Monotone Binary Models: Discrete Regressors and Interval Data," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 75(3), pages 835-864.
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    6. Thierry Kalisa & Mary Riddel & W. Douglass Shaw, 2016. "Willingness to pay to avoid arsenic-related risks: a special regressor approach," Journal of Environmental Economics and Policy, Taylor & Francis Journals, vol. 5(2), pages 143-162, July.
    7. Yingying Dong & Arthur Lewbel, 2015. "A Simple Estimator for Binary Choice Models with Endogenous Regressors," Econometric Reviews, Taylor & Francis Journals, vol. 34(1-2), pages 82-105, February.
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