The Gini Instrumental Variable, or 'the Double IV Estimator'

31 Pages Posted: 26 Aug 2001

See all articles by Edna Schechtman

Edna Schechtman

Ben-Gurion University of the Negev - Department of Industrial Engineering and Management

Shlomo Yitzhaki

Hebrew University of Jerusalem - Department of Economics; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: July 1, 2001

Abstract

This paper shows that both OLS and Gini regression estimators can be interpreted as weighted averages of slopes of the regression curve, where the weights are derived from the Absolute Lorenz Curve of the independent variable. The instrumental variable estimators, under both approaches, can also be viewed as weighted sums of the same slopes, with the weights being derived from the Absolute Concentration Curve of the instrument with respect to the independent variable. This interpretation enables the derivation of sufficient conditions for monotonic transformations to change the sign of the instrumental variables' estimators. These conditions should be reported because they inform the reader how robust is the conclusion with respect to the sign of the estimate. It is also shown the Gini IV is less sensitive to outliers and to monotonic transformations than the OLS, it has a built-in test for examining the validity of the IV, and that it can be used to test the sensitivity of an IV estimator to the OLS regression method.

Keywords: Instrumental Variable, Ordinary Least Squares, Gini's Mean Difference

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JEL Classification: C13, J0

Suggested Citation

Schechtman, Edna and Yitzhaki, Shlomo, The Gini Instrumental Variable, or 'the Double IV Estimator' (July 1, 2001). Available at SSRN: https://ssrn.com/abstract=281091 or http://dx.doi.org/10.2139/ssrn.281091

Edna Schechtman

Ben-Gurion University of the Negev - Department of Industrial Engineering and Management ( email )

Beer-Sheva 84105
Israel
+972 8 647 2596 (Phone)
+972 8 647 2958 (Fax)

Shlomo Yitzhaki (Contact Author)

Hebrew University of Jerusalem - Department of Economics ( email )

Mount Scopus
Jerusalem, 91905
Israel
+972 2 659 2201 (Phone)
+972 2 652 2319 (Fax)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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