Limited information econometrics - Andrew Chesher

Event Date: 11 March 2015

Seminar: Limited information econometrics

Speaker: Andrew Chesher, University College London and CeMMAP

When: Wednesday, March 11 at 4.1pm

Venue: Room AR201, Achitecture Building, University of Strathclyde

Abstract:  In the single equation, limited information models studied at the Cowles Commission in the 1940’s the way in which values of some endogenous variables arise is left unspecified except that certain exogenous variables were posited to be instrumental in that process In modern econometrics limited information models arise when multiple equilibria are permitted and there is no equilibrium selection mechanism specified, and when values of endogenous variables are restricted only by inequalities such as arise when positive profits are required.

Limited information models impose weaker restrictions than complete models and so are robust to misspecification, but they are frequently not point identifying. This difficulty has led many researchers to use complete models which can be point identifying but they are often built on a fragile foundation of implausible restrictions. So-called “control function” models are a good example. I contrast these approaches and set out some recent results which characterize the identifying power of incomplete econometric models. I illustrate with a new look at the problem studied in the 1998 AER paper of Angrist and Evans which employed an IV model of female labour force participation with, as instrumental variables, measures of the incidence of twins and the gender mix of the two first born children.

Here are some of the papers referred to in the talk: 

Andrew Chesher and Adam Rosen “What do instrumental variable models deliver with discrete dependent variables?” 2013, American Economic  Review – Papers and Proceedings, Vol 103, 557-562.  http://www.cemmap.ac.uk/wps/cwp101313.pdf

Andrew Chesher and Adam Rosen, “Generalized Instrumental Variable Models,”  2014, CeMMAP Working Paper CWP 04/14. http://www.cemmap.ac.uk/publication/id/7060

Angrist, Joshua, and William N. Evans, “Children and Their Parents’ Labor Supply:  Evidence from Exogenous Variation in Family Size,” 1998, American Economic Review, Vol 88: 450-487.

Published: 3 March 2015