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st: Estimate endogenous fractional response variable

Subject   st: Estimate endogenous fractional response variable
Date   Wed, 7 Dec 2011 21:38:00 +0100

Dear All

I would like to estimate a 2SLS model where the endogenous variable is a fractional response variable with values between 0 and 1.
However, the ivreg command only allows for simple linear regressions in both the first stage and the reduced form. Is it possible to conduct the IV estimation manually by transforming the dependent variable into a log-odds ratio as proposed by Papke and Wooldridge (1996)? So instead of 

ivreg r lmval capint (drank = ffloat age)

I would apply the following two-step procedure:

regress drank_transf ffloat age lmval capint   // using drank_transf = log(drank/(1-drank))
predict drank_fitted, replace
regress r drank_fitted lmval capint

Now I am not sure if this manual approach consistently replaces the ivreg procedure in the usual linear setting. If so, I hope it produces unbiased estimates for the fractional response variable in this special case as well. But how can I specify a test for exogeneity of the excluded instruments ffloat and age without making use of the standardized ivreg procedure?

Any help will be greatly appreciated.

Best regards,
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