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Testing instrument validity in sample selection models

  • Huber, Martin

    ()

  • Mellace, Giovanni

    ()

This paper proposes tests for instrument validity in sample selection models with non-randomly censored outcomes. Such models commonly invoke an exclusion restriction (i.e., the availability of an instrument affecting selection, but not the outcome) and additive separability of the errors in the selection process. These assumptions allow us to both point identify and bound the outcome distribution of the subpopulation of the always selected, whose outcomes are observed irrespective of the instrument value. As the point must lie within its bounds, this yields two testable inequality constraints. We apply our tests to two instruments conventionally exploited for the estimation of female wage equations: non-wife/husband's income and the number of (young) children. Considering eight empirical applications, our results suggest that the former is not a valid instrument, while the validity of the latter is not refuted on statistical grounds.

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File URL: http://www1.vwa.unisg.ch/RePEc/usg/econwp/EWP-1145.pdf
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Paper provided by University of St. Gallen, School of Economics and Political Science in its series Economics Working Paper Series with number 1145.

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Length: 33 pages
Date of creation: Dec 2011
Date of revision:
Handle: RePEc:usg:econwp:2011:45
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  1. Horowitz, Joel L & Manski, Charles F, 1995. "Identification and Robustness with Contaminated and Corrupted Data," Econometrica, Econometric Society, vol. 63(2), pages 281-302, March.
  2. Huber, Martin & Mellace, Giovanni, 2011. "Testing instrument validity for LATE identification based on inequality moment constraints," Economics Working Paper Series 1143, University of St. Gallen, School of Economics and Political Science.
  3. Mitali Das & Whitney K. Newey & Francis Vella, 2003. "Nonparametric Estimation of Sample Selection Models," Review of Economic Studies, Wiley Blackwell, vol. 70(1), pages 33-58, January.
  4. Donald W. K. Andrews & Panle Jia Barwick, 2012. "Inference for Parameters Defined by Moment Inequalities: A Recommended Moment Selection Procedure," Econometrica, Econometric Society, vol. 80(6), pages 2805-2826, November.
  5. Joshua Angrist & Eric Bettinger & Michael Kremer, 2006. "Long-Term Educational Consequences of Secondary School Vouchers: Evidence from Administrative Records in Colombia," American Economic Review, American Economic Association, vol. 96(3), pages 847-862, June.
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  8. Zabel, Jeffrey E, 1993. "The Relationship between Hours of Work and Labor Force Participation in Four Models of Labor Supply Behavior," Journal of Labor Economics, University of Chicago Press, vol. 11(2), pages 387-416, April.
  9. Richard Blundell & Amanda Gosling & Hidehiko Ichimura & Costas Meghir, 2004. "Changes in the distribution of male and female wages accounting for employment composition using bounds," IFS Working Papers W04/25, Institute for Fiscal Studies.
  10. Whitney Newey, 1999. "Two Step Series Estimation of Sample Selection Models," Working papers 99-04, Massachusetts Institute of Technology (MIT), Department of Economics.
  11. Joshua D. Angrist & William N. Evans, 1996. "Children and Their Parents' Labor Supply: Evidence from Exogenous Variation in Family Size," NBER Working Papers 5778, National Bureau of Economic Research, Inc.
  12. Philip Oreopoulos & Daniel Lang & Joshua Angrist, 2009. "Incentives and Services for College Achievement: Evidence from a Randomized Trial," American Economic Journal: Applied Economics, American Economic Association, vol. 1(1), pages 136-63, January.
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  14. Gary S. Becker, 1981. "A Treatise on the Family," NBER Books, National Bureau of Economic Research, Inc, number beck81-1.
  15. Christopher J. Bennett, 2009. "Consistent and Asymptotically Unbiased MinP Tests of Multiple Inequality Moment Restrictions," Vanderbilt University Department of Economics Working Papers 0908, Vanderbilt University Department of Economics.
  16. Gallant, A Ronald & Nychka, Douglas W, 1987. "Semi-nonparametric Maximum Likelihood Estimation," Econometrica, Econometric Society, vol. 55(2), pages 363-90, March.
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  18. Imbens, Guido W & Rubin, Donald B, 1997. "Estimating Outcome Distributions for Compliers in Instrumental Variables Models," Review of Economic Studies, Wiley Blackwell, vol. 64(4), pages 555-74, October.
  19. Donald W.K. Andrews & Gustavo Soares, 2007. "Inference for Parameters Defined by Moment Inequalities Using Generalized Moment Selection," Cowles Foundation Discussion Papers 1631, Cowles Foundation for Research in Economics, Yale University.
  20. Heckman, James J, 1979. "Sample Selection Bias as a Specification Error," Econometrica, Econometric Society, vol. 47(1), pages 153-61, January.
  21. Gronau, Reuben, 1974. "Wage Comparisons-A Selectivity Bias," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1119-43, Nov.-Dec..
  22. 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.
  23. Leslie G. Godfrey, 2005. "Controlling the Overall Significance Level of a Battery of Least Squares Diagnostic Tests," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 67(2), pages 263-279, 04.
  24. Le-Yu Chen & Jerzy Szroeter, 2009. "Hypothesis testing of multiple inequalities: the method of constraint chaining," CeMMAP working papers CWP13/09, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
  25. Imbens, Guido W & Angrist, Joshua D, 1994. "Identification and Estimation of Local Average Treatment Effects," Econometrica, Econometric Society, vol. 62(2), pages 467-75, March.
  26. Sheng‐Kai Chang, 2011. "Simulation estimation of two‐tiered dynamic panel Tobit models with an application to the labor supply of married women," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 26(5), pages 854-871, 08.
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