Identification and shape restrictions in nonparametric instrumental variables estimation

Arbeitspapier

This paper is concerned with inference about an unidentified linear functional, L(g), where the function g satisfies the relation Y=g(x) + U; E(U/W) = 0. In this relation, Y is the dependent variable, X is a possibly endogenous explanatory variable, W is an instrument for X, and U is an unobserved random variable. The data are an independent random sample of (Y, X, W). In much applied research, X and W are discrete, and W has fewer points of support than X. Consequently, neither g nor L(g) is nonparametrically identified. Indeed, L(g) can have any value in (-∞, ∞). In applied research, this problem is typically overcome and point identification is achieved by assuming that g is a linear function of X. However, the assumption of linearity is arbitrary. It is untestable if W is binary, as is the case in many applications. This paper explores the use of shape restrictions, such as monotonicity or convexity, for achieving interval identification of L(g). Economic theory often provides such shape restrictions. This paper shows that they restrict L(g) to an interval whose upper and lower bounds can be obtained by solving linear programming problems. Inference about the identified interval and the functional L(g) can be carried out by using by using the bootstrap. An empirical application illustrates the usefulness of shape restrictions for carrying out nonparametric inference about L(g).

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: cemmap working paper ; No. CWP15/12

Classification and Topics

• Classification: Wirtschaft ; Estimation: General ; Semiparametric and Nonparametric Methods: General ; Single Equation Models: Single Variables: Instrumental Variables (IV) Estimation

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Freyberger, Joachim ; Horowitz, Joel
• Event: Veröffentlichung
• (who): Centre for Microdata Methods and Practice (cemmap)
• (where): London
• (when): 2012

Further information

• DOI: doi:10.1920/wp.cem.2012.1512
• Handle: http://hdl.handle.net/10419/64720
• Last update: 10.03.2025, 11:42 AM CET