In order for a variable to be a good proxy, it must have a close correlation, not necessarily linear or positive, with the variable of interest. For example, we may observe a dummy variable for whether one has started a business as a proxy for entrepreneurial ability. Or we may observe the frequency of elections as a proxy for democracy.
The possibilities here are endless. An example might be useful here. In this case, it is reasonable to argue that the proxy is measured with error. Zack Brown and I once won an award for pointing out, using relatively simple micro theory, that wealth is a terrible proxy for risk aversion in applied contract theory —in addition to changing the curvature of a utility function, a change in wealth also changes utility at the margin, which complicates the relationship between contract choice and wealth by making it nonmonotonic in most cases.
Here is the abstract of that paper:. Tests of risk sharing in the contracting literature often rely on wealth as a proxy for risk aversion. The intuition behind these tests is that since contract choice is monotonic in the coefficients of risk aversion, which are themselves assumed monotonic in wealth, the effect of a change in wealth on contract choice is clearly identified.
We show that tests of risk sharing relying on wealth as a proxy for risk aversion are only identified insofar as the econometrician is willing to assume that i the principal is risk-neutral or her preferences exhibit CARA; and ii the agent is risk-neutral.
Given the frequent use of proxies, it pays to think carefully about two related questions when doing empirical work:. Are any of the variables in the regression of interest proxies for something else? Recently viewed 0 Save Search. Your current browser may not support copying via this button. Subscriber sign in You could not be signed in, please check and try again. Username Please enter your Username. Password Please enter your Password. Forgot password?
Don't have an account? Sign in via your Institution. You could not be signed in, please check and try again. Sign in with your library card Please enter your library card number.
Related Content Related Overviews latent variable. Show Summary Details Overview proxy variable. Reference entries proxy variable in A Dictionary of Economics 3 Length: 40 words.
All rights reserved.
0コメント