School of Economics

2012 Discussion Papers

 

School of Economics Discussion Paper 12/14

November 2012

 

Point identification in the presence of
measurement error in discrete variables:
application – wages and disability


Eirini-Christina Saloniki and Amanda Gosling
University of Kent

 

Abstract:

This paper addresses the problem of point identification in the presence of measurement error in discrete variables; in particular, it considers the case of having two “noisy” indicators of the same latent variable and without any prior information about the true value of the variable of interest. Based on the concept of the fourfold table and creating a nonlinear system of simultaneous equations from the observed proportions and predicted wages, we examine the need for different assumptions in order to obtain unique solutions for the system. We show that by imposing a simple restriction(s) for the joint misclassification probabilities, it is possible to measure the extent of the misclassification error in that specific variable. The proposed methodology is then used to identify whether people misreport their disability status using data from the British Household Panel Survey. Our results show that the probability of underreporting is greater than the probability of overreporting disability.

JEL Classification: C14; C35; J14; J31

 

Keywords: measurement error; discrete; misclassification probabilities; identification; disability

 


To download the file in PDF format click here.

 

School of Economics, Keynes College, University of Kent, Canterbury, Kent, CT2 7NP

Undergraduate enquiries: +44 (0) 1227 827497, Postgraduate enquiries: +44 (0) 1227 827440 or email us

Last Updated: 12/03/2015