The economic returns to education: finite-sample properties of an instrumental variable estimator

Kézdi, Gábor (2001) The economic returns to education: finite-sample properties of an instrumental variable estimator. Hungarian Statistical Review, 79 (SN6). pp. 134-149. ISSN 0039-0690

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Abstract

This paper evaluates the instrumental variables measurement of the causal effect of education on earnings, with special focus on finite sample issues. A simple well-known theoretical model is presented and the inconsistency of the reduced-form estimator is established. The problem of weak instruments is examined in details and multiple remedies are considered. The relevant issues are illustrated through a particular example from a published paper, including a simulation exercise to inspect weak instruments problems and evaluate the performance of alternative estimators.

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