We assess the implications of nonlinearity for IV and FE estimation
when the estimated model is inappropriately assumed to be linear.
Our application is the causal link between family income and child outcomes. Our nonlinear IV and FE estimates show an increasing, concave relationship between family income and children's outcomes. We find that the linear estimators miss the significant effects of family income because they assign little weight to the large marginal effects in the lower part of the income distribution. We also show that the linear IV and FE estimates differ primarily because of different weighting of marginal effects. (JEL C26, D14, J12, J13)
"What Linear Estimators Miss: The Effects of Family Income on Child Outcomes." American Economic Journal: Applied Economics,
Single Equation Models: Single Variables: Instrumental Variables (IV) Estimation
Marriage; Marital Dissolution; Family Structure; Domestic Abuse
Fertility; Family Planning; Child Care; Children; Youth