12.5 Estimation

• First stage: \(\hat{D}_{i} = \alpha + \delta Z_{i} + \mathbf{X}_{i}\mathbf{\beta}\)
• Second stage: \(y_{i} = \gamma + \theta \hat{D}_{i} + \mathbf{X}_{i}\mathbf{\beta} + \epsilon_{i}\)
• Stages normally implemented in single function, e.g. ivreg()