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Heckman Two-Step Estimation <Back to Last Page>     <Full Glossary>

Definition of Heckman Two-Step Estimation: Heckman two-step estimation is a way of estimating treatment effects when the treated sample is self-selected and so the effects of the treatment are confounded with the population that chose it because they expected it would help -- the classic example is that college educations may be selected by those most likely to benefit.

Taking that example, we wish to advance past the following regression:

wi = a + bXi + dCi + ei

where i indexes people, wi is the wage (or other outcome variable) for agent i, Xi are variables predicting i's wage, and Ci is 1 if i went to college and 0 if not. ei is the remaining error after least squares estimation of a, b, and d. (Econterms)

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