Individual wage and reservation wage: efficient estimation of a simultaneous equation model with endogenous limited dependent variables

Giorgio Calzolari and Antonino Di Pino

MPRA Paper from University Library of Munich, Germany

Abstract: We consider a simultaneous equation model with two endogenous limited dependent variables (individual wage and reservation wage) characterized by a selection mechanism determining a two-regimes endogenous-switching. We extend the FIML procedure proposed by Poirier-Ruud (1981) for a single equation switching model providing a stochastic specification for both equations and for the selection criterion. An accurate Monte Carlo experiment shows that the relative efficiency of the FIML estimator over to the Two-Stage procedure is remarkably high in presence of a high degree of endogeneity in the selection equation.

Keywords: Selection bias; endogenous switching (search for similar items in EconPapers)
JEL-codes: C31 C34 (search for similar items in EconPapers)
Date: 2009-09-23
New Economics Papers: this item is included in nep-ecm and nep-lab
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Published in Proceedings of Scientific Meeting of the Italian Statistical Society: Statistical Methods for the Analysis of Large Data-Sets Pescara: University G. D'Annunzio (2009): pp. 343-346

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Related works:
Working Paper: Self-Selection and Direct Estimation of Across-Regime Correlation Parameter (2014)
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