The Review of Economics and Statistics Vol. 69 No. 2 1987
The Flypaper Effect Revisited: An Econometric Explanation
Abstract
Monte Carlo evidence is presented which supports the conclusion that when a block grants variable in an ordinary least squares (OLS) model is endogenously constructed due to the closed-ended nature of matching aid, estimates of the propensity to spend lump-sum aid are biased upward. The findings suggest that OLS estimates lead to erroneous conclusions regarding the existence of a flypaper effect and support the use of maximum likelihood models in situations where budget constraints are piecewise-linear.
- DOI
- 10.2307/1927243
- Volume
- 69
- Issue
- 2
- Pages
- 347
- Sources
- crossref openalex