This paper shows that neither OLS nor 2SLS can generically identify policy trade offs in the linear case, except under extreme assumptions. Practitioners have to be content with near identification and the paper discusses how to choose between these two methods. It shows that a two-stage approach using preference proxies to elicit hidden information can potentially narrow the identification gap and that a simple specification test can be used to assess whether these proxies really contribute to improving identification.
Policy trade offs; near identification; preference proxies;
TSE Working Paper, n° 16-642, avril 2016