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A Note on Interdependence as a Specification Error
Jacques H. Dreze
Robert H. Strotz
Abstract
In an earlier paper on "Interdependence as a Specification Error," Strotz has considered a recursive model with endogenous variables lagged by $\theta$; letting $\theta$ go to 0, he argued that the likelihood function of the limit form of the model differed from the limit form of the likelihood function of the model. We show here that the two limits are obtained under different underlying assumptions; these alternative assumptions are brought out explicitly; under fixed assumptions, the two methods are shown to yield identical results.
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