EconPapers    
Economics at your fingertips  
 

Two-stage residual inclusion estimation: Addressing endogeneity in health econometric modeling

Joseph Terza (), Anirban Basu () and Paul J. Rathouz

Journal of Health Economics, 2008, vol. 27, issue 3, 531-543

Abstract: The paper focuses on two estimation methods that have been widely used to address endogeneity in empirical research in health economics and health services research--two-stage predictor substitution (2SPS) and two-stage residual inclusion (2SRI). 2SPS is the rote extension (to nonlinear models) of the popular linear two-stage least squares estimator. The 2SRI estimator is similar except that in the second-stage regression, the endogenous variables are not replaced by first-stage predictors. Instead, first-stage residuals are included as additional regressors. In a generic parametric framework, we show that 2SRI is consistent and 2SPS is not. Results from a simulation study and an illustrative example also recommend against 2SPS and favor 2SRI. Our findings are important given that there are many prominent examples of the application of inconsistent 2SPS in the recent literature. This study can be used as a guide by future researchers in health economics who are confronted with endogeneity in their empirical work.

Date: 2008
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (322) Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0167-6296(07)00106-3
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jhecon:v:27:y:2008:i:3:p:531-543

Access Statistics for this article

Journal of Health Economics is currently edited by J. P. Newhouse, A. J. Culyer, R. Frank, K. Claxton and T. McGuire

More articles in Journal of Health Economics from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().

 
Page updated 2019-04-22
Handle: RePEc:eee:jhecon:v:27:y:2008:i:3:p:531-543