st: Binary Endogenous Interactions

["Gregory, Christian" <cgregory@ers.usda.gov>]

Colleagues,

I have a two equation model:

Y1=zb + xb + e
Y2 = xb  + y1b + y1*v*b + u

b is generic for coefficients. Both y1 and y2 are binary. Z are
instruments for y1. I'm interested in the marginal effect of the
interaction y1*v on Y2. I have estimated the above using ml and a method
that deals with the correlation of e & u.  

I haven't instrumented for the interaction of y1 and v. The distribution
of y1*v is bimodal-obviously, with a lot of zeros; conditional on y1==1,
it is normal.  So, a third equation-that predicts y1*v as a function of
z-is possible, although I'm not sure the form it should take, and
certainly not what distribution is appropriate to specify in the
likelihood function. Any suggestions would be greatly appreciated.

Thanks for your consideration.

Christian









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