Endogeneity in Semiparametric Panel Binary Choice Model

Abstract

In this paper, we study estimation of a semiparametric panel binary choice model with fixed-effects and continuous endogenous regressors. The proposed procedure combines the smoothed maximum score approach with the control function approach and allows for a fixed effect nonparametric first stage regression. Under some sufficient conditions, we show that the proposed estimator for the finite dimensional parameter is consistent and asymptotically normally distributed. A small scale simulation study demonstrates that the proposed procedure has some practical value.

Keywords:

• Asymptotic theory
• Binary choice
• Panel data

JEL Classification:

• C14
• C22

ACKNOWLEDGMENT

We benefit greatly from the comments made by two reviewers and the editor.