Testing identifying assumptions in bivariate probit models

Santiago Acerenza, Otavio Bartalotti and Desire Kedagni

Journal of Applied Econometrics, 2023, vol. 38, issue 3, 407-422

Abstract: This paper considers the bivariate probit model's identifying assumptions: linear index specification, joint normality of errors, instrument exogeneity, and relevance. First, we develop sharp testable equalities that detect all possible observable violations of the assumptions. Second, we propose an easy‐to‐implement testing procedure for the model's validity using existing inference methods for intersection bounds. The test achieves correct empirical size and performs well in detecting violations of the conditions in simulations. Finally, we provide a road map on what to do when the bivariate probit model is rejected, including novel bounds for the average treatment effect that relax the normality assumption.

Date: 2023
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Citations: View citations in EconPapers (3)

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https://doi.org/10.1002/jae.2956

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Working Paper: Testing Identifying Assumptions in Bivariate Probit Models (2021)
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