A Note on the Theme of Too Many Instruments

The “difference” and “system” generalized method of moments (GMM) estimators for dynamic panel models are growing steadily in popularity. The estimators are designed for panels with short time dimensions (T), and by default they generate instruments sets whose number grows quadratically in T. The dangers associated with having many instruments relative to observations are documented in the applied literature. The instruments can overfit endogenous variables, failing to expunge their endogenous components and biasing coefficient estimates. Meanwhile they can vitiate the Hansen J test for joint validity of those instruments, as well as the difference-in-Sargan/Hansen test for subsets of instruments. The weakness of these specification tests is a particular concern for system GMM, whose distinctive instruments are only valid under a non-trivial assumption. Judging by current practice, many researchers do not fully appreciate that popular implementations of these estimators can by default generate results that simultaneously are invalid yet appear valid. The potential for type I errors—false positives—is therefore substantial, especially after amplification by publication bias. This paper explains the risks and illustrates them with reference to two early applications of the estimators to economic growth, Forbes (2000) on income inequality and Levine, Loayza, and Beck (LLB, 2000) on financial sector development. Endogenous causation proves hard to rule out in both papers. Going forward, for results from these GMM estimators to be credible, researchers must report the instrument count and aggressively test estimates and specification test results for robustness to reductions in that count.dynamic panel estimation, difference GMM, system GMM, Stata, Arellano-Bond, Blundell-Bond, generalized method of moments, autocorrelation, finance and growth, inequality and growth

The Complexity of Infinite Computations In Models of Set Theory

We prove the following surprising result: there exist a 1-counter B\"uchi automaton and a 2-tape B\"uchi automaton such that the \omega-language of the first and the infinitary rational relation of the second in one model of ZFC are \pi_2^0-sets, while in a different model of ZFC both are analytic but non Borel sets. This shows that the topological complexity of an \omega-language accepted by a 1-counter B\"uchi automaton or of an infinitary rational relation accepted by a 2-tape B\"uchi automaton is not determined by the axiomatic system ZFC. We show that a similar result holds for the class of languages of infinite pictures which are recognized by B\"uchi tiling systems. We infer from the proof of the above results an improvement of the lower bound of some decision problems recently studied by the author

Graphs with tiny vector chromatic numbers and huge chromatic numbers

Karger, Motwani, and Sudan [J. ACM, 45 (1998), pp. 246-265] introduced the notion of a vector coloring of a graph. In particular, they showed that every k-colorable graph is also vector k-colorable, and that for constant k, graphs that are vector k-colorable can be colored by roughly Δ^(1 - 2/k) colors. Here Δ is the maximum degree in the graph and is assumed to be of the order of n^5 for some 0 < δ < 1. Their results play a major role in the best approximation algorithms used for coloring and for maximum independent sets. We show that for every positive integer k there are graphs that are vector k-colorable but do not have independent sets significantly larger than n/Δ^(1- 2/k) (and hence cannot be colored with significantly fewer than Δ^(1-2/k) colors). For k = O(log n/log log n) we show vector k-colorable graphs that do not have independent sets of size (log n)^c, for some constant c. This shows that the vector chromatic number does not approximate the chromatic number within factors better than n/polylogn. As part of our proof, we analyze "property testing" algorithms that distinguish between graphs that have an independent set of size n/k, and graphs that are "far" from having such an independent set. Our bounds on the sample size improve previous bounds of Goldreich, Goldwasser, and Ron [J. ACM, 45 (1998), pp. 653-750] for this problem

The parameterised complexity of counting connected subgraphs and graph motifs

We introduce a family of parameterised counting problems on graphs, p-#Induced Subgraph With Property(Φ), which generalises a number of problems which have previously been studied. This paper focuses on the case in which Φ defines a family of graphs whose edge-minimal elements all have bounded treewidth; this includes the special case in which Φ describes the property of being connected. We show that exactly counting the number of connected induced k-vertex subgraphs in an n-vertex graph is #W[1]-hard, but on the other hand there exists an FPTRAS for the problem; more generally, we show that there exists an FPTRAS for p-#Induced Subgraph With Property(Φ) whenever Φ is monotone and all the minimal graphs satisfying Φ have bounded treewidth. We then apply these results to a counting version of the Graph Motif problem

Hardness of Vertex Deletion and Project Scheduling

Assuming the Unique Games Conjecture, we show strong inapproximability results for two natural vertex deletion problems on directed graphs: for any integer $k\geq 2$ and arbitrary small $\epsilon > 0$, the Feedback Vertex Set problem and the DAG Vertex Deletion problem are inapproximable within a factor $k-\epsilon$ even on graphs where the vertices can be almost partitioned into $k$ solutions. This gives a more structured and therefore stronger UGC-based hardness result for the Feedback Vertex Set problem that is also simpler (albeit using the "It Ain't Over Till It's Over" theorem) than the previous hardness result. In comparison to the classical Feedback Vertex Set problem, the DAG Vertex Deletion problem has received little attention and, although we think it is a natural and interesting problem, the main motivation for our inapproximability result stems from its relationship with the classical Discrete Time-Cost Tradeoff Problem. More specifically, our results imply that the deadline version is NP-hard to approximate within any constant assuming the Unique Games Conjecture. This explains the difficulty in obtaining good approximation algorithms for that problem and further motivates previous alternative approaches such as bicriteria approximations.Comment: 18 pages, 1 figur