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st: design issue with suspect endogeneity

From   "[email protected]" <[email protected]>
To   [email protected]
Subject   st: design issue with suspect endogeneity
Date   Mon, 24 Jan 2011 14:41:09 +0100 (CET)

Dear statalist,

I am sorry to pose the same question for the second time. I posted it on 
Friday night and I had no answer, and I´m afraid it was the time with the 
lowest visibility.

I have a research design doubt. 

I am considering the following model and the focus of the analysis is on a2:


where z is a dummy variable

Economic theory also suggests that:


If I find collinearity between x and z to be ok, can I estimate the first 
equation with OLS and disregard the second equation? 

My view is that I can safely use OLS only if cov(e,v)=0, but how can I test 
this condition?

Thanks a lot,


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