Panel Data Binary Response Model in a Triangular System
University of Tartu - Faculty of Economics and Business Administration Working Paper Series, No. 110, 2018
Posted: 21 Aug 2018
Date Written: August 8, 2018
Abstract
We propose a new control function (CF) method for binary response outcomes in a triangular system with unobserved heterogeneity of multiple dimensions. The identified CFs are the expected values of the heterogeneity terms in the reduced form equations conditional on the endogenous, Xi ≡ (xi1, . . . ,xiT ), and the exogenous, Zi ≡ (zi1, . . . , ziT ), variables. The method requires weaker restrictions compared to traditional CF methods for triangular systems with imposed structures similar to ours, and point-identifies average partial effects with discrete instruments. We discuss semiparametric identification of structural measures using the proposed CFs. An application and Monte Carlo experiments compare several alternative methods with ours.
Keywords: Control Functions, Unobserved Heterogeneity, Identification, Instrumental Variables, Average Partial Effects, Child Labor
JEL Classification: C13, C18, C33
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