Skip to main content
Article
Testing Identifying Assumptions in Bivariate Probit Models
Economics Working Papers
  • Santiago Acerenza, Iowa State University
  • Otávio Bartalotti, Iowa State University
  • Desire Kedagni, Iowa State University
Publication Date
3-29-2021
Number
21003
Abstract

This paper focuses on the bivariate probit model's identifying
assumptions: joint normality of errors, instrument exogeneity, and relevance conditions. First, we develop novel sharp testable equalities that can detect all possible observable violations of the assumptions. Second, we propose an easy-to-implement testing procedure for the model's validity based on feasible testable implications using existing inference methods for intersection bounds. The test achieves correct empirical size for moderately sized samples and performs well in detecting violations of the conditions in Monte Carlo simulations. Finally, we provide researchers with a road map on what to do when the bivariate probit model is rejected, including novel bounds for the average treatment effect that relax the normality assumption. Empirical examples illustrate the methodology's implementation.

Version History

Original Release Date: March 29, 2021

Departments
Department of Economics, Iowa State University
File Format
application/pdf
Length
47 pages
Citation Information
Santiago Acerenza, Otávio Bartalotti and Desire Kedagni. "Testing Identifying Assumptions in Bivariate Probit Models" (2021)
Available at: http://works.bepress.com/otavio-bartalotti/17/