3
$\begingroup$

I assumed you would need to do an IV probit in this scenario, but it was not used in this AER paper - Children and Their Parents' Labor Supply (Angrist and Evans, 1998).

The first stage is estimated using OLS:

  • more than 2 kids(1 or 0) = IV(1 or 0) + error

The second stage is:

  • labor force participation (1 or 0) = more than two kids (1 or 0) + error

These are all estimated using regular 2SLS, which involves OLS, and I thought that would not be appropriate?

The second stage uses different dependent variables which are usually continuous, but the first stage is always OLS with a dependent variable dummy. Why is this something that is okay for the first stage of a 2SLS?

$\endgroup$

1 Answer 1

5
$\begingroup$

Using OLS on count and dummy variables is appropriate. The estimates are consistent. Using OLS instead of probit/logit is appropriate if the number of observations is sufficiently high. For example Bleakley (QJE, 2007) uses this approach on survey data.

I don't know why you would imagine that logit or probit needs to be used in the first stage either. The first stage is a simple projection of the instrumented variable on the rest. There is no room or necessity for a link function here.

$\endgroup$

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service and acknowledge that you have read and understand our privacy policy and code of conduct.

Not the answer you're looking for? Browse other questions tagged or ask your own question.