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Characterizing the impact of discrete indicators to correct for endogeneity in discrete choice models

Lookup NU author(s): Thomas Guerrero Barbosa, Professor Elisabetta Cherchi

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This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License (CC BY-NC-ND).

Abstract

© 2022 Elsevier Ltd. Endogeneity is a common problem in econometric modelling that may lead to estimating inconsistent parameters. In the scientific literature, the Multiple Indicator Solutions (MIS) method is used to correct for endogeneity. This approach uses indicators that, in practice, tend to be collected as discrete using Likert scales; however, theoretically, the MIS method is derived considering continuous indicators. To close this research gap, this paper focuses on characterizing the impact of discrete indicators when correcting for endogeneity using the MIS method in the case of discrete choice models (DCM). Our findings show that (i) under some conditions, using discrete indicators instead of continuous ones seems not to be a problem, however, (ii) there is also evidence that indicates that the correction could fail under not unusual circumstances.

Publication metadata

Author(s): Guerrero TE, Guevara CA, Cherchi E, Ortuzar JDD

Publication type: Article

Publication status: Published

Journal: Journal of Choice Modelling

Year: 2022

Volume: 42

Print publication date: 01/03/2022

Online publication date: 05/01/2022

Acceptance date: 29/12/2021

Date deposited: 29/03/2022

ISSN (electronic): 1755-5345

Publisher: Elsevier Ltd

URL: https://doi.org/10.1016/j.jocm.2021.100342

DOI: 10.1016/j.jocm.2021.100342

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