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st: ivreg2 and LATE


From   "Francesco Burchi" <fburchi@uniroma3.it>
To   <statalist@hsphsun2.harvard.edu>
Subject   st: ivreg2 and LATE
Date   Thu, 11 Mar 2010 18:08:58 +0100

Dear Statalisters,

I have a question which is partly related to Stata and partly to general
econometric analysis, I hope you can give me some suggestions.
 
I am running a 2SLS estimation using -ivreg2- because one of the
explanatory variable is endogenous. This endogenous variable is
continuous and standardized, thus it varies between 0 and 1. I have used
two dummy variables as instrument. I have run several tests that show
that the instruments are valid (exogenous, not weak, and not redundant)
and not likely to be endogenous; moreover the Wu-Hausman test confirms
that the instrumental variable approach is the right one.

Now, since the coefficient of the endogenous variable is about 6 times
larger in the 2SLS estimates as compared to the OLS estimates (while the
significance is only slightly different), and since it is the only
coefficient substantially changing depending on the estimator, I was
asked to give some "size" interpretation. In particular, I was asked
whether the 2SLS estimates are LATE (Local average treatment effect) and
whether I am sure that there are no "defiers". To my knowledge, mainly
based on the works of Imbens and Angrist, LATE assume that some
properties such as "monotonicity" are satisfied, which means that there
are no defiers. My questions are: 1) Is there a way to check whether
there are "defiers"? (I believe the answer is "no"); 2) How can I
interpret the size of the coefficient and not just its significance? 3)
Is there any relevant aspect to consider when we look closely at the
relationship between the instrumental variables and the endogenous
variable, which might be of great relevance to derive policy
recommendations?

I should add that I am using Stata 10.

Thank you in advance for your precious help,

Best,
Francesco


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