The Conditions for a Valid Instruments Do Not Include the Following

question 22

Short Answer

The conditions for a valid instruments do not include the following: a. each instrument must be uncorrelated with the error term.
b. each one of the instrumental variables must be normally distributed.
c. at least one of the instruments must enter the population regression of $X$ on the $Z$ 's and the $W$ 's.
d. perfect multicollinearity between the predicted endogenous variables and the exogenous variables must be ruled out.

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Definitions:

Perfectly Competitive

A market structure where there are many sellers and buyers, products are homogeneous, and there are no barriers to entry or exit.

Compensating Differences

Differences in the wages received by workers in different jobs to compensate for the nonmonetary differences between the jobs.

Wage Rates

Wage rates are the standard amount of compensation given to employees for their labor, typically expressed per hour or day.

Job Characteristics

Attributes or aspects of a job that influence workers' motivation and satisfaction.