Efficient Estimation in Models with Independence Restrictions

Abstract

Unconditional or conditional independence restrictions are used in many econometric models to identify their parameters. However, there are few results about efficient estimation procedures for finite-dimensional parameters under these independence restrictions. This paper computes the efficiency bound for finite-dimensional parameters under independence restrictions, and proposes an estimator that is consistent, asymptotically normal and which achieves the efficiency bound. The estimator is based on a growing number of zero-covariance conditions that are asymptotically equivalent to the independence restriction. The results are illustrated with examples, including an instrumental variables regression model and partially linear regression models. A small Monte-Carlo study is performed to investigate the estimator’s small sample properties and to quantify the efficiency gains that can be made by using the proposed efficient estimator.

Keywords: Efficiency Bounds, Independence, Estimation

JEL Classification: C13, C14