Small sample properties of LIML and jackknife IV estimators: experiments with weak instruments

Using Monte Carlo simulations we study the small sample performance of the traditional TSLS, the LIML and four new jackknife IV estimators when the instruments are weak. We find that the new estimators and LIML have a smaller bias but a larger variance than the TSLS. In terms of root mean square error, neither LIML nor the new estimators perform uniformly better than the TSLS. The main conclusion from the simulations and an empirical application on labour supply functions is that in a situation with many weak instruments, there still does not exist an easy way to obtain reliable estimates in small samples. Better instruments and/or larger samples is the only way to increase precision in the estimates. Since the properties of the estimators are specific to each data-generating process and sample size it would be wise in empirical work to complement the estimates with a Monte Carlo study of the estimators' properties for the relevant sample size and data-generating process believed to be applicable. Copyright © 1999 John Wiley & Sons, Ltd.