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Nonparametric Instrumental Variable Estimation of Binary Response Models with Continuous Endogenous Regressors

Samuele Centorrino and Jean-Pierre Florens

Econometrics and Statistics, 2021, vol. 17, issue C, 35-63

Abstract: An instrumental variable approach to the nonparametric estimation of binary response models with endogenous variables is presented. Identification is achieved via a reduced form model constructed from the decomposition of the unobserved dependent variable into the space of instruments. It is further assumed that disturbances in this model are independent of instruments, and their distribution is taken to be known. For estimation purposes, the fully nonparametric model is approximated by a sequence of locally weighted parametric models. Consistency and asymptotic normality of this estimator is proven, and a simulation study is performed to corroborate its small sample properties. Relevant policy parameters are constructed via a simulated nonparametric estimator of choice probabilities.

Keywords: Nonparametric Methods; Endogeneity; Instrumental Variables; Binary Models; Tikhonov Regularization (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1016/j.ecosta.2020.07.003

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