Two-step estimation of discrete/continuous econometric models with interdependent multinomial choices

This paper considers theoretical and practical aspects associated with the two-step estimation of discrete/continuous econometric models when the choice dimension concerns interdependent choices. A two-step procedure is favored over a full information one to avoid the specification errors that could arise from misspecifying the joint distribution of the mixed discrete and continuous random variables involved. For the estimation of the second step, the authors add selectivity correction terms to a conventional regression based formulation. Because of the interdependencies among the choices, the correction terms depend on multivariate normal integrals that cannot be evaluated numerically in situations with many choices. As a solution, we replace them with efficient simulators. (a) For the covering entry of this conference, please see ITRD abstract no. E213535.