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Estimation of Binary Choice Models with Linear Index and Dummy Endogenous Variables

Author

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  • Nese Yildiz

    (University of Rochester, Department of Economics)

Abstract
This paper presents computationally simple estimators for the index coefficients in a binary choice model with a binary endogenous regressor without relying on distributional assumptions or on large support conditions and yields root-n consistent and asymptotically normal estimators. We develop a multi-step method for estimating the parameters in a triangular, linear index, threshold-crossing model with two equations. Such an econometric model might be used in testing for moral hazard while allowing for asymmetric information in insurance markets. In outlining this new estimation method two contributions are made. The first one is proposing a novel ”matching” estimator for the coefficient on the binary endogenous variable in the outcome equation. Second, in order to establish the asymptotic properties of the proposed estimators for the coefficients of the exogenous regressors in the outcome equation, the results of Powell, Stock and Stoker (1989) are extended to cover the case where the average derivative estimation requires a first step semi-parametric procedure.

Suggested Citation

  • Nese Yildiz, 2012. "Estimation of Binary Choice Models with Linear Index and Dummy Endogenous Variables," Koç University-TUSIAD Economic Research Forum Working Papers 1202, Koc University-TUSIAD Economic Research Forum.
    • Handle: RePEc:koc:wpaper:1202
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    File URL: http://eaf.ku.edu.tr/sites/eaf.ku.edu.tr/files/erf_wp_1202.pdf
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    References listed on IDEAS

    as
    1. Guido W. Imbens & Whitney K. Newey, 2009. "Identification and Estimation of Triangular Simultaneous Equations Models Without Additivity," Econometrica, Econometric Society, vol. 77(5), pages 1481-1512, September.
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    5. Joseph G. Altonji & Rosa L. Matzkin, 2005. "Cross Section and Panel Data Estimators for Nonseparable Models with Endogenous Regressors," Econometrica, Econometric Society, vol. 73(4), pages 1053-1102, July.
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    11. Horowitz, Joel & Hardle, Wolfgang, 1994. "Direct Semiparametric Estimation of Single-Index Models With Discrete Covariates," Working Papers 94-22, University of Iowa, Department of Economics.
    12. James J. Heckman & Hidehiko Ichimura & Petra Todd, 1998. "Matching As An Econometric Evaluation Estimator," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 65(2), pages 261-294.
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