A Practical Comparison of the Bivariate Probit and Linear IV Estimators

44 Pages Posted: 20 Apr 2016

See all articles by Richard C. Chiburis

Richard C. Chiburis

affiliation not provided to SSRN

Jishnu Das

Georgetown University; Georgetown University

Michael Lokshin

World Bank - Development Research Group (DECRG); National Research University Higher School of Economics

Date Written: March 1, 2011

Abstract

This paper presents asymptotic theory and Monte-Carlo simulations comparing maximum-likelihood bivariate probit and linear instrumental variables estimators of treatment effects in models with a binary endogenous treatment and binary outcome. The three main contributions of the paper are (a) clarifying the relationship between the Average Treatment Effect obtained in the bivariate probit model and the Local Average Treatment Effect estimated through linear IV; (b) comparing the mean-square error and the actual size and power of tests based on these estimators across a wide range of parameter values relative to the existing literature; and (c) assessing the performance of misspecification tests for bivariate probit models. The authors recommend two changes to common practices: bootstrapped confidence intervals for both estimators, and a score test to check goodness of fit for the bivariate probit model.

Keywords: Scientific Research & Science Parks, Science Education, Statistical & Mathematical Sciences, Econometrics, Educational Technology and Distance Education

Suggested Citation

Chiburis, Richard C. and Das, Jishnu and Lokshin, Michael, A Practical Comparison of the Bivariate Probit and Linear IV Estimators (March 1, 2011). World Bank Policy Research Working Paper No. 5601. Available at SSRN: https://ssrn.com/abstract=1792259

Richard C. Chiburis (Contact Author)

affiliation not provided to SSRN

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Jishnu Das

Georgetown University ( email )

O Street
Washington, DC 20057
United States

Georgetown University ( email )

Old North, Suite 100
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Washington, DC 20057
United States

Michael Lokshin

World Bank - Development Research Group (DECRG) ( email )

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Washington, DC 20433
United States
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202-522-1153 (Fax)

HOME PAGE: http://econ.worldbank.org/staff/mlokshin

National Research University Higher School of Economics

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Moscow, Moscow 119017
Russia

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