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st: RE: RE: RE: Re: several endogenous dummies


From   "Verpoorten, Marijke" <Marijke.Verpoorten@econ.kuleuven.be>
To   <statalist@hsphsun2.harvard.edu>
Subject   st: RE: RE: RE: Re: several endogenous dummies
Date   Fri, 1 Sep 2006 16:45:17 +0200

Dear Mark,

Thank you for pointing out the 3SLS, I wasn't aware of this procedure.

Wrt the second issue, there is a misunderstanding. I'm not omitting any
endogenous variable from the equation. I do not estimate 

ivreg2 y x1 (x2=z1)
ivreg2 y x1 (x3=z1)

Instead, I estimate

Condivreg y x1 x2 (x3=z1 z2), ar lm
Condivreg y x1 x3 (x2=z1 z3), ar lm

with the set of instruments (z1 z2) and (z1 z3) a relevant subset of the
full set of instruments (z1 z2 z3). I do so, because I have weak
instruments and condivreg only allows for instrumenting one endogenous
variable. 

Are these equations also misspecified?

Marijke


-----Original Message-----
From: owner-statalist@hsphsun2.harvard.edu
[mailto:owner-statalist@hsphsun2.harvard.edu] On Behalf Of Schaffer,
Mark E
Sent: vrijdag 1 september 2006 16:30
To: statalist@hsphsun2.harvard.edu
Subject: st: RE: RE: Re: several endogenous dummies

Marijke,

Two reactions to your post:

> -----Original Message-----
> From: owner-statalist@hsphsun2.harvard.edu 
> [mailto:owner-statalist@hsphsun2.harvard.edu] On Behalf Of 
> Verpoorten, Marijke
> Sent: Friday, September 01, 2006 1:28 PM
> To: statalist@hsphsun2.harvard.edu
> Subject: st: RE: Re: several endogenous dummies
> 
> Hi Rodrigo,
> 
> Thanks a lot for your answer. I'm sorry for my late reply; I 
> was traveling.
> 
> To answer to your first three questions: (1)I have a set of 
> 17 instruments among which several cross-products and squares 
> of the exogenous RHS variables, (2) I use the same set of 
> instruments for each of the variables, though for some 
> variables some instruments are not relevant. I did not find a 
> way to use different subsets of instruments in the ivreg2 
> procedure,

This is a misunderstanding about single-equation IV that comes up from
time to time on Statalist.  In single-equation IV, there is no way to
limit sets instruments to apply to particular sets of endogenous
regressors.  This is basically by definition - you can do this, but then
you are in the land of system estimation, 3SLS, FIML and the like.  For
example, in

ivreg2 y x1 (x2 x3 = z1 z2 z3 z4)

you might think that z1 and z2 instrument for x2, and z3 and z4
instrument for x3.  But that is another way of saying that you want to
specify 3 equations - y, x2, and x3 - and get efficiency gains from
system estimation.  No problem - use reg3 or whatever - but then it's
not single-equation IV.

> (3) I need to instrument five dummies and two 
> count variables. These variables give information on whether 
> or not a household was hit by a particular war-related shock, 
> such as the death/illness of a household member, imprisonment 
> of a member, months taken refuge abroad etc. I want to 
> analyze which type of shock has a long term effect on the 
> household's welfare.
> 
> Household welfare in 2002 = f(household welfare in 1990, 
> household characteristics in 1990, shocks occurring between 1990-2002)
> 
> When I use the usual ivreg2 procedure to solve for the 
> possible endogeneity of the war-related shocks, I face the 
> weak instrument problem. Therefore I also use the condivreg 
> procedure, for each shock separately, while using the most 
> relevant set of instruments for each shock (those significant 
> at 10% in the first stage of ivreg2). However, I don't know 
> whether it makes sense to instrument for each shock separately.

This is probably not legitimate, at least as you describe it.  The
problem is that you can't identify an equation in this kind of
piece-by-piece manner.  It's like the following example.  You want to
estimate

ivreg2 y x1 (x2 x3=z1)

but it's not identified because you don't have enough excluded
instruments.  You can't solve the problem by estimating the following
two equations:

ivreg2 y x1 (x2=z1)

ivreg2 y x1 (x3=z1)

The two equations are identified but misspecified, because in each case,
z1 will be correlated with the error term via the omitted endogenous
variable.  You will have the same problem if you instrument for each of
your endogeous regressors separately.

HTH.

--Mark

Prof. Mark E. Schaffer
Director
Centre for Economic Reform and Transformation
Department of Economics
School of Management & Languages
Heriot-Watt University
Edinburgh EH14 4AS  UK
44-131-451-3494 direct
44-131-451-3296 fax
http://www.sml.hw.ac.uk/cert


> I'm not sure I understand your suggestion about using the 
> mlogit or mprobit procedure. Is this to be used in the first 
> stage? Is it possible when the dummies may overlap, i.e. a 
> household may face several shocks.
> How may the first stage information be used in the second 
> stage? As predicted probabilities?
> 
> I also have to admit that I don't know what you mean with a 
> full characterization of the problem using ml. Could you put 
> me on the right track with a reference to a stata code, a 
> textbook or an article?
> 
> Thank you very much,
> 
> Marijke
> 
> 
> 
> 
> 
> -----Original Message-----
> From: owner-statalist@hsphsun2.harvard.edu
> [mailto:owner-statalist@hsphsun2.harvard.edu] On Behalf Of Rodrigo A.
> Alfaro
> Sent: zaterdag 26 augustus 2006 6:22
> To: statalist@hsphsun2.harvard.edu
> Subject: st: Re: several endogenous dummies
> 
> Marijke,
> 
> I don't know the answer for your question but I can give you 
> some questions that you can explore. Note that the reference 
> that you wrote describes 1
> 
> dummy variable, which sounds reasonable to do it by that 
> procedure instead of linear IV. Moreover, Wooldridge said 
> that the estimation of the parameters and the specification 
> of the model in the first stage do not affect the standard 
> errors of 2SLS. Great!!!
> 
> How many instruments are you going to use for these dummies? 
> Same set for each one? What number several means? Why not 
> combine the choices into a multinominal problem (solving by 
> mlogit or mprobit)? After you feel confortable with your 
> entire model, equations for the dummies plus your 2SLS one I 
> think that it is not longer valid the non-effect on std 
> errors when you are trying to solve for several endogenous dummies.
> 
> Maybe a full characterization of the problem is the way to 
> go. You can describe all the process (endogenous dummies plus 
> your continuous
> variable)
> as a maximum likelihood framework. You will pay with 
> additional assumption above the model but the reward will be 
> a complete system with "no-better" 
> standard errors.
> 
> Rodrigo.
> 
> 
> 
> ----- Original Message -----
> From: "Verpoorten, Marijke" <Marijke.Verpoorten@econ.kuleuven.be>
> To: <statalist@hsphsun2.harvard.edu>; 
> <statalist@hsphsun2.harvard.edu>; <statalist@hsphsun2.harvard.edu>
> Sent: Friday, August 25, 2006 3:38 PM
> Subject: st: several endogenous dummies
> 
> 
> Dear statlisters,
> 
> I wonder whether, when having a continuous variable as a 
> dependent variable and several endogenous dummies, it`s 
> better to use the usual 2SLS (ivreg2), instead of 
> instrumenting the dummies non-linearly (as in Wooldridge, 
> 2002, p623-625). Could you help me with this question?
> 
> Kind regards,
> Marijke
> 
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