Two-Step Estimation of Panel Data Models with Censored Endogenous Variables and Selection Bias

Posted: 4 Jan 2006

See all articles by Francis Vella

Francis Vella

Georgetown University; IZA Institute of Labor Economics

Marno Verbeek

Erasmus University - Rotterdam School of Management; Erasmus Research Institute of Management (ERIM); Netspar

Abstract

This paper presents some two-step estimators for a wide range of parametric panel data models with censored endogenous variables and sample selection bias. Our approach is to derive estimates of the unobserved heterogeneity responsible for the endogeneity/selection bias to include as additional explanatory variables in the primary equation. These are obtained through a decomposition of the reduced form residuals. The panel nature of the data allows adjustment, and testing, for two forms of endogeneity and/or sample selection bias. Furthermore, it incorporates roles for dynamics and state dependence in the reduced form. Finally, we provide an empirical illustration which features our procedure and highlights the ability to test several of the underlying assumptions.

Keywords: Two-step estimation; panel data, endogenous regressors, sample selection, conditional maximum likelihood

JEL Classification: C33, C34

Suggested Citation

Vella, Francis and Verbeek, Marno, Two-Step Estimation of Panel Data Models with Censored Endogenous Variables and Selection Bias. Journal of Econometrics, Vol. 90, pp. 239-263, June 1999, Available at SSRN: https://ssrn.com/abstract=873512

Francis Vella

Georgetown University ( email )

Washington, DC 20057
United States
202-687-5573 (Phone)

HOME PAGE: http://explore.georgetown.edu/people/fgv/

IZA Institute of Labor Economics

Schaumburg-Lippe-Str. 7 / 9
Bonn, D-53072
Germany

Marno Verbeek (Contact Author)

Erasmus University - Rotterdam School of Management ( email )

P.O. Box 1738
Room T09-53
3000 DR Rotterdam
Netherlands
+31 10 408 2790 (Phone)

HOME PAGE: http://www.rsm.nl/mverbeek

Erasmus Research Institute of Management (ERIM)

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Netspar

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
1,184
PlumX Metrics