Nonparametric Instrumental Variable Estimation of Binary Response Models with Continuous Endogenous Regressors

An instrumental variable approach to the nonparametric estimation of binary response models with endogenous variables is presented. Identification is achieved via a reduced form model constructed from the decomposition of the unobserved dependent variable into the space of instruments. It is further assumed that disturbances in this model are independent of instruments, and their distribution is taken to be known. For estimation purposes, the fully nonparametric model is approximated by a sequence of locally weighted parametric models. Consistency and asymptotic normality of this estimator is proven, and a simulation study is performed to corroborate its small sample properties. Relevant policy parameters are constructed via a simulated nonparametric estimator of choice probabilities. (C) 2020 EcoSta Econometrics and Statistics. Published by Elsevier B.V. All rights reserved.