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st: 2SLS with probit in the first stage


From   Renuka Metcalfe <rm18203@yahoo.co.uk>
To   statalist <statalist@hsphsun2.harvard.edu>
Subject   st: 2SLS with probit in the first stage
Date   Wed, 20 Feb 2008 18:00:25 +0000 (GMT)

Dear Kit

Thank you. As I mentioned I used -xtreg- for the
original equation as I believed that random-effects
GLS is a less biased estimator than OLS, since the
data are grouped across workplaces (Moulton, 1987). A
Hausman test easily rejects the fixed effects GLS.

I tried to perform the Hausman test by estimating the
model with -xtivreg- using re. But this is what I got:

 . xtivreg pay  yrsed  (b4a2 = dhat) mnedwk2 e1a1
p1a2-p1a5 v2a1-v2a5 v14a1 dis2 h2a2 h2a3 h4a2 h3a1
h3a3 h3a4 f1a1 z2-z6  ratiopk2 n1-n4 n6-n12
fnonmana1-fn6  fno1-fno6 ratiofk2 aga1  k2-k4 in1 c1,
re

no room to add more variables
    An attempt was made to add a variable that would
have resulted in more than 2048 or 2047 variables
    (Stata reserves one variable for its own use). 
You have the following alternatives:

     1.  Drop some variables; see help drop.

     2.  If you are using Stata/SE, increase maxvar;
see help maxvar.
r(900);

As I am suing Intercooled Stata; option is not
applicable to me.

I would appreciate your comments immensely.

Thank you


Kit Baum wrote:

I guess I don't understand your setup. You're using
xtreg, which is appropriate for panel data. If the
original regression is

.xtreg y training meanworkplacetraining x2 x3 x4

and there is a possibility that training is
endogenous, you definitely are violating the key
assumption of the random-effects model, that the
regressors are distributed independently of the
errors. You should be estimating this equation
allowing for endogeneity of the suspected variable,
and need to perform a Hausman test of the
appropriateness of the key assumption. You can do the
Hausman test by estimating the model with -xtivreg-
using RE and FE. If you find that the RE assumption
cannot be maintained, then use - xtivreg2- with fixed
effects and use the -endog()- option to test whether
the endogeneity is an issue.



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