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Worst-case estimation and asymptotic theory for models with unobservables

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  • Esteban-Bravo, Mercedes
  • Vidal-Sanz, Jose M.

Abstract

This paper proposes a worst-case approach for estimating econometric models containing unobservable variables. Worst-case estimators are robust against the adverse effects of unobservables. In contrast to the classical literature, there are no assumptions about the statistical nature of the unobservables in a worst-case estimation. This method is robust with respect to the unknown probability distribution of the unobservables and should be seen as a complement to standard methods, as cautious modelers should compare different estimations to determine robust models. The limit theory is obtained. A Monte Carlo study of finite sample properties has been conducted. An economic application is included.

Suggested Citation

  • Esteban-Bravo, Mercedes & Vidal-Sanz, Jose M., 2004. "Worst-case estimation and asymptotic theory for models with unobservables," DEE - Working Papers. Business Economics. WB wb045518, Universidad Carlos III de Madrid. Departamento de Economía de la Empresa.
    • Handle: RePEc:cte:wbrepe:wb045518
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    3. H.J. Bierens, 1981. "Robust Methods and Asymptotic Theory in Nonlinear Econometrics," Statistica Neerlandica, Netherlands Society for Statistics and Operations Research, vol. 35(3), pages 173-173, September.
    4. Chamberlain, Gary & Griliches, Zvi, 1975. "Unobservables with a Variance-Components Structure: Ability, Schooling, and the Economic Success of Brothers," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 16(2), pages 422-449, June.
    5. Chamberlain, Gary, 1977. "Education, income, and ability revisited," Journal of Econometrics, Elsevier, vol. 5(2), pages 241-257, March.
    6. Aigner, Dennis J. & Hsiao, Cheng & Kapteyn, Arie & Wansbeek, Tom, 1984. "Latent variable models in econometrics," Handbook of Econometrics, in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 2, chapter 23, pages 1321-1393, Elsevier.
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    More about this item

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C60 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - General

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