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Econometrics Paper
Estimation of Nonseparable Models with Censored Dependent Variables and Endogenous Regressors.
Taisuke Otsu and Luke Taylor
August 2014
Paper No' EM/2014/575:
Full Paper (pdf)

JEL Classification: C24; C34; C14

In this paper we develop a nonparametric estimator for the local average response of a censored dependent variable to endogenous regressors in a nonseparable model where the unobservable error term is not restricted to be scalar and where the nonseparable function need not be monotone in the unobservables. We formalise the identification argument put forward in Altonji, Ichimura and Otsu (2012), construct the nonparametric estimator, characterise its asymptotic property, and conduct a Monte Carlo investigation to study the small sample properties. Identification is constructive and is achieved through a control function approach. We show that the estimator is consistent and asymptotically normally distributed. The Monte Carlo results are encouraging.