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For example, the simultaneous equations approach, such as that outlined by Greene (7), would have used predicted values of bloody diarrhea from the first stage of the model as instrumental variables for the actual value in the model for hemolytic uremic syndrome. Because price expectations are not directly observed in the economy, a useful instrumental variable would, say, rise when price expectations rise for reasons other than a rise in current prices. Finally, rather than using a standard 2SLS procedure, where the reduced form of choice is linear, I use the fitted choice probabilities from the probit model in Table 3 as a single instrumental variable for choice in the contribution equation. |
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