Correcting for Endogeneity in Models with Bunching

Carolina Caetano, Gregorio Caetano and Eric Nielsen

Journal of Business & Economic Statistics, 2024, vol. 42, issue 3, 851-863

Abstract: We develop a novel control function approach in models where the treatment variable has bunching at one corner of its support. This situation typically arises when the treatment variable is a constrained choice and some observations choose the corner solution. The method exploits distributional shape restrictions but makes no exclusion restrictions. We provide estimators and establish their asymptotic behavior, prove the convergence of the bootstrap, and develop tests of the identification assumptions. An application reveals that watching television has no effect on cognitive skills and a negative effect on noncognitive skills in children.

Date: 2024
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Working Paper: Correcting for Endogeneity in Models with Bunching (2020)
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DOI: 10.1080/07350015.2023.2252471

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