Chesher, AD; Rosen, A; Smolinski, K; (2013) An instrumental variable model of multiple discrete choice. Quantitative Economics , 4 (2) pp. 157-196. 10.1920/wp.cem.2011.3911.

Preview

PDF OA_Chesher_article_QE240.pdf Available under License : See the attached licence file. Download (660kB)

Abstract

This paper studies identification of latent utility functions in multiple discrete choice models in which there may be endogenous explanatory variables, that is explanatory variables that are not restricted to be distributed independently of the unobserved determinants of latent utilities. The model does not employ large support, special regressor or control function restrictions, indeed it is silent about the process delivering values of endogenous explanatory variables and in this respect it is incomplete. Instead the model employs instrumental variable restrictions requiring the existence of instrumental variables which are excluded from latent utilities and distributed independently of the unobserved components of utilities. We show that the model delivers set identification of the latent utility functions and we characterize sharp bounds on those functions. We develop easy-to-compute outer regions which in parametric models require little more calculation than what is involved in a conventional maximum likelihood analysis. The results are illustrated using a model which is essentially the parametric conditional logit model of McFadden (1974) but with potentially endogenous explanatory variables and instrumental variable restrictions. The method employed has wide applicability and for the first time brings instrumental variable methods to bear on structural models in which there are multiple unobservables in a structural equation.

Download activity - last month

Export as CSVXMLJSON

Download activity - last 12 months

Export as CSVJSONXML

Downloads by country - last 12 months

Export as JSONXMLCSV

Archive Staff Only

View Item