Control Functions

The control function approach is an econometric method used to correct for biases that arise as a consequence of selection and/or endogeneity. It is the leading approach for dealing with selection bias in the correlated random coefficients model. The basic idea of the method is to model the dependence between the variables not observed by the analyst on the observables in a way that allows us to construct a function K such that, conditional on the function, the endogeneity problem (relative to the object of interest) disappears.