Ill-posed Problems and Instruments' Weakness

Abstract

Potscher (Econometrica, 2002) has pointed out that several estimation problems in econometrics are ill-posed. This paper further studies the nature of ill-posed problems in parametric models. Our starting point is that both parameters and estimators may be seen as maps from the manifold of density functions to an m-dimensional Euclidean space, and we investigate the properties that these maps have to transmit perturbations. In the special case of structural equations models, we argue that this framework provides coherent measures of instruments' weaknessIll-posed Problems, Weak Instruments, Parametric Models