Logit-based alternatives to two-stage least squares

Author:

Denis Chetverikov, Jinyong Hahn, Zhipeng Liao, Shuyang Sheng

Keyword:

Economics, Econometrics, Econometrics (econ.EM)

journal:

date:

2023-12-16 00:00:00

Abstract

We propose logit-based IV and augmented logit-based IV estimators that serve as alternatives to the traditionally used 2SLS estimator in the model where both the endogenous treatment variable and the corresponding instrument are binary. Our novel estimators are as easy to compute as the 2SLS estimator but have an advantage over the 2SLS estimator in terms of causal interpretability. In particular, in certain cases where the probability limits of both our estimators and the 2SLS estimator take the form of weighted-average treatment effects, our estimators are guaranteed to yield non-negative weights whereas the 2SLS estimator is not.

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