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The rise of endogeneity in multilevel models: A theoretical assessment of the role of stratification

Mostafa, T; (2014) The rise of endogeneity in multilevel models: A theoretical assessment of the role of stratification. International Journal of Economic Theory , 10 (3) pp. 263-274. 10.1111/ijet.12041. Green open access

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Abstract

This paper studies the role of stratification in the rise of endogeneity bias in multilevel models. The theory is illustrated using educational stratification and its implications on the estimation of multilevel education production functions. Educational stratification results from the functioning of the education market; it transforms a continuum of student characteristics into a continuum of tuition fees. These fees enter students' utility functions and determine the school they attend and its quality. In other words, student characteristics are the major determinants of school quality and the two are correlated. In this paper, I analyze how these correlations arise and what their implications are for multilevel estimation of education production functions. The major problem posed by such correlations is cross-level endogeneity bias. The theory developed in this paper can be extended to any economic phenomenon that exhibits stratification or nesting of smaller units within larger units (employees within firms, residents within neighborhoods, etc.).

Type: Article
Title: The rise of endogeneity in multilevel models: A theoretical assessment of the role of stratification
Open access status: An open access version is available from UCL Discovery
DOI: 10.1111/ijet.12041
Publisher version: http://dx.doi.org/10.1111/ijet.12041
Language: English
Additional information: This is the peer reviewed version of the following article: Mostafa, T; (2014) The rise of endogeneity in multilevel models: A theoretical assessment of the role of stratification. International Journal of Economic Theory, 10 (3) pp. 263-274, which has been published in final form at: http://dx.doi.org/10.1111/ijet.12041. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Self-Archiving (http://olabout.wiley.com/WileyCDA/Section/id-828039.html#terms).
UCL classification: UCL
UCL > Provost and Vice Provost Offices
UCL > Provost and Vice Provost Offices > School of Education
UCL > Provost and Vice Provost Offices > School of Education > UCL Institute of Education
UCL > Provost and Vice Provost Offices > School of Education > UCL Institute of Education > IOE - Social Research Institute
URI: https://discovery.ucl.ac.uk/id/eprint/1500894
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