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st: RE: Re: diagnostics for the treatreg procedure


From   "Schaffer, Mark E" <M.E.Schaffer@hw.ac.uk>
To   <statalist@hsphsun2.harvard.edu>
Subject   st: RE: Re: diagnostics for the treatreg procedure
Date   Mon, 28 Aug 2006 16:39:40 +0100

Rodrigo,

> -----Original Message-----
> From: owner-statalist@hsphsun2.harvard.edu 
> [mailto:owner-statalist@hsphsun2.harvard.edu] On Behalf Of 
> Rodrigo A. Alfaro
> Sent: 28 August 2006 16:07
> To: statalist@hsphsun2.harvard.edu
> Subject: st: Re: diagnostics for the treatreg procedure
> 
> Hi Mark,
> 
> Interesting conversation. I have a question about the procedure. 
> It seems to me that Yang wants to do ML instead of two-step IV.
> Why he wants that? The two-step IV does not require that 
> probit should be corretly specified in compare with ML. In 
> other words, he could solve the problem via-ML with a logit!!
> 
> Rodrigo.

In fact, Yang wanted to do 2-step treatreg because he was following the
method used by an earlier paper.  But the ML overid test is easier to
do.

When you say "two-step IV", do you mean the same thing as two-step
treatreg?  Two-step treatreg uses the assumption of normality in the
probit eqn (just like heckman).

I couldn't see an easy way to do the overid test for two-step treatreg
that doesn't change the nature of the treatreg model.  Simple (two-step)
IV would generate an overid statistic, but that drops the normality
assumption in the treatment equation, which is an identifying
restriction.

Cheers,
Mark

> 
> ----- Original Message -----
> From: "Schaffer, Mark E" <M.E.Schaffer@hw.ac.uk>
> To: <statalist@hsphsun2.harvard.edu>
> Sent: Sunday, August 27, 2006 8:40 PM
> Subject: st: diagnostics for the treatreg procedure
> 
> 
> Dear Statalisters:
> 
> I had the following off-list conversation about how to generate an
> overid stat for a treatreg estimation.  It occurred to me 
> that it might
> be of general interest, so I'm posting it here.
> 
> Both I and my correspondent would be very interested in any comments
> other Statalisters might have.
> 
> Cheers,
> Mark
> 
> >>>>-----Original Message-----
> >>>>From: Yang Lu [mailto:ylu1@stern.nyu.edu]
> >>>>Sent: 26 August 2006 02:52
> >>>>To: Schaffer, Mark E
> >>>>Subject: diagnostics for the treatreg procedure
> >>>>
> >>>>Hi, Mark,
> >>>>
> >>>>I saw your post on STATA list about the 
> overidentification test for 
> >>>>treatreg regression. You mentioned you had programmed one. I am 
> >>>>wondering whether you could kindly share it with me, when 
> you fell 
> >>>>comfortable. Thanks a lot.
> >>>>
> >>>>cheers,
> >>>>yang
> 
> >>Schaffer, Mark E wrote:   
> >>
> >>>Yang,
> >>>
> >>>If I'm not mistaken, the overid test for treatreg is 
> actually pretty 
> >>>easy to do by hand for the ML version.  The trick is to do 
> an LR test
> >>>of the overidentifed treatreg system of interest vs. a
> just-identified
> >>>version.
> >>>
> >>>Using the example from the manual, say you estimate
> >>>
> >>>treatreg ww wa cit, treat(wc=wmed wfed)
> >>>
> >>>There's one endogenous variable in the outcome equation, and 4
> exclusion
> >>>restrictions: wa and cit don't appear in the treatment 
> eqn, and wmed 
> >>>and wfed don't appear in the outcome equation.  There's 
> also one more
> >>>identifying restriction, namely normality in the treatment (probit)
> eqn.
> >>>To get a test of your 4 overidentifying/exclusion 
> restrictions, just
> do   
> >>>an LR test of the above vs. a just-identified system with no
> exclusion
> >>>restrictions.  The single identifying restriction is 
> normality.  Thus
> >>>
> >>>use http://www.stata-press.com/data/r9/labor.dta, replace
> >>>gen wc=(we>12)
> >>>
> >>>treatreg ww wa cit, treat(wc=wmed wfed) est store troverid
> >>>
> >>>treatreg ww wa cit wmed wfed, treat(wc=wmed wfed wa cit) est store 
> >>>trjustid
> >>>
> >>>lrtest troverid trjustid, df(4)
> >>>
> >>>will give you an overid test for this example.
> >>>
> >>>Cheers,
> >>>Mark
> 
> >>Hi, Mark,
> >>
> >>Thanks a lot for your reply. I really appreciate it. My question is 
> >>slightly different from the one you just mentioned. In the 
> treatment 
> >>model, I have one endogenous variable and 3 instrument 
> variables. I am
> 
> >>trying to do the Sargan type overidentification test to show the 
> >>validity of the instruments. My model is as follows:
> >>
> >>treatreg y x1 x2 x3, treat(dummy=iv1 iv2 iv3 x1 x2 x3)
> >>
> >>Notice that I have already included x1 x2 x3 in my 
> selection model. So
> 
> >>in this case, I do test as follows:
> >>
> >>treatreg y x1 x2 x3, treat(dummy=iv1 iv2 iv3 x1 x2 x3) est store 
> >>troverid
> >>
> >>treatreg y iv1 iv2 iv3 x1 x2 x3, treat(dummy=iv1 iv2 iv3 x1 
> x2 x3) est
> 
> >>store trjustid
> >>
> >>lrtest troverid trjustid, df(2)
> >>
> >>Is this the correct test to show the validity of 
> instruments, like the
> 
> >>Sargan test? Thanks a lot.
> >>
> >>cheers,
> >>yang
> 
> Schaffer, Mark E wrote:
> 
> >Hi Yang.  You are doing ML estimation of a system, so the 
> term "Sargan 
> >test" is probably inappropriate - Sargan developed his 
> statistic in the
> 
> >context of IV/2SLS estimation.  The corresponding ML test for single 
> >eqn estimation is the Anderson-Rubin statistic for LIML.  I 
> don't think
> 
> >the ML statistic for a system has a name per se.  But all 
> these tests 
> >are basically the same thing.
> >
> >In the example I sent you, there were 5 identifying 
> restrictions - two 
> >exclusions from each eqn, plus the normality assumption.  The test I 
> >sent was a test of the 4 overidentifying restrictions in the system, 
> >the normality assumption being maintained.  The test has 4 dofs since
> 5-1=4.
> >
> >Your example is a special case, since you have exclusions 
> from only the
> 
> >outcome equation.  You have 4 identifying restrictions: the 3 
> >exclusions plus the 1 normality assumption.  The test in 
> your example 
> >is done correctly, except that there should be 4-1=3 dofs.
> >
> >Can I share this with Statalist?  I should have replied to the list 
> >with your first email.  It's the kind of thing that is of general 
> >interest, plus if I've made a mistake, someone may spot it.
> >
> >Cheers,
> >Mark
> >
> >Prof. Mark Schaffer
> >Director, CERT
> >Department of Economics
> >School of Management & Languages
> >Heriot-Watt University, Edinburgh EH14 4AS tel 
> +44-131-451-3494 / fax 
> >+44-131-451-3296
> >email: m.e.schaffer@hw.ac.uk
> >web: http://www.sml.hw.ac.uk/ecomes
> 
> 
> 
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