Which of the following is a justification for overidentification tests?
A) If each instrument satisfies both the inclusion and exclusion condition, than using each instrument alone should produce an unbiased estimate of B1.
B) If each instrument satisfies both the inclusion and exclusion condition, than using each instrument alone will produce biased results.
C) Once we identify the excessive identification condition, the efficiency of our estimates will improve.
D) They allow us to identify weak instruments.

Question

Quizplus · Accepted Answer

Overidentification tests are used to check if the instruments used in a model are valid. If each instrument satisfies both the inclusion (relevant) and exclusion (only affects the dependent variable through the independent variable) conditions, then theoretically, using each instrument alone should produce an unbiased estimate of the coefficient of interest (B1). This is the basis for overidentification tests, which assess whether the extra instruments are indeed valid by checking if the estimates are consistent across different instrument sets.

Which of the Following Is a Justification for Overidentification Tests