Correcting for Endogeneity in Models with Bunching
Carolina Caetano, Gregorio Caetano, & Eric Nielsen
We show that in models with endogeneity, bunching at the lower or upper boundary of the distribution of the treatment variable may be used to build a correction for endogeneity. We derive the asymptotic distribution of the parameters of the corrected model, provide an estimator of the standard errors, & prove the consistency of the bootstrap. An empirical application reveals that time spent watching television, corrected for endogeneity, has roughly no net effect on cognitive skills & a significant negative net effect on non-cognitive skills in children.
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September 18, 2020
Source: Federal Reserves
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