Econometrics seminar: David Frazier (Monash University)
The School of Economics invites you to an Econometrics seminar presented by David Frazier (Monash University).
Weak Instruments in Discrete Choice Models
Eric Renault (University of Warwick), Lina Zhang (Wuhan University) and Xueyan Zhao (Monash University)
This paper proposes a test to consistently detect weak instruments in discrete choice models. As a by-product of our testing approach, we construct a generalized `concentration parameter’ that allows us to generalize the standard `rule-of-thumb’ for linear models to discrete choice models. This generalized concentration parameter provides insights regarding instrument strength in a host of discrete choice models. A Monte Carlo analysis compares our proposed testing approach against commonly applied weak instrument tests. The results simultaneously demonstrate the good performance of our approach and the fundamental failure of conventionally applied, i.e., linear, weak instruments tests in this context. We compare our testing approach to those commonly applied in the literature within two empirical examples: married women labor force participation, and US food aid and civil conflicts.