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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. Mroz, Thomas A, 1987. "The Sensitivity of an Empirical Model of Married Women's Hours of Work to Economic and Statistical Assumptions," Econometrica, Econometric Society, vol. 55(4), pages 765-99, July.
  2. Martin Huber & Giovanni Mellace, 2015. "Testing Instrument Validity for LATE Identification Based on Inequality Moment Constraints," The Review of Economics and Statistics, MIT Press, vol. 2(97), pages 398-411, May.
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  12. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 31(3), pages 129-137.
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  20. 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.
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  24. 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.
  25. Gary S. Becker, 1981. "A Treatise on the Family," NBER Books, National Bureau of Economic Research, Inc, number beck81-1, June.
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