This paper provides a control function estimator to adjust for endogeneity in the triangular simultaneous equations model where thereare no available exclusion restrictions to generate suitable instruments.Our approach is to exploit the dependence of the errors on exogenous variables (e.g. heteroscedasticity) to adjust the conventional control function estimator. The form of the error dependence on the exogenous variables is subject to restrictions, but is not parametricallyspecified. In addition to providing the estimator and deriving its large-sample properties, we present simulation evidence which indicates theestimator works well.
Centre for microdata methods and practice