Individual wage and reservation wage: efficient estimation of a simultaneous equation model with endogenous limited dependent variables

Calzolari, Giorgio and Di Pino, Antonino (2009): Individual wage and reservation wage: efficient estimation of a simultaneous equation model with endogenous limited dependent variables. Published in: Proceedings of Scientific Meeting of the Italian Statistical Society: Statistical Methods for the Analysis of Large Data-Sets No. Pescara: University G. D'Annunzio (September 2009): pp. 343-346.

Abstract

We consider a simultaneous equation model with two endogenous limited dependent variables (individual wage and reservation wage) characterized by a selection mechanism determining a two-regimes endogenous-switching. We extend the FIML procedure proposed by Poirier-Ruud (1981) for a single equation switching model providing a stochastic specification for both equations and for the selection criterion. An accurate Monte Carlo experiment shows that the relative efficiency of the FIML estimator over to the Two-Stage procedure is remarkably high in presence of a high degree of endogeneity in the selection equation.

• Item Type: MPRA Paper
• Language: English
• Keywords: Selection bias; endogenous switching
• Subjects: C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C34 - Truncated and Censored Models ; Switching Regression Models; C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C31 - Cross-Sectional Models ; Spatial Models ; Treatment Effect Models ; Quantile Regressions ; Social Interaction Models

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