Instrumental variable estimation of gross flows in the presence of measurement error

The problem of estimating transition rates from longitudinal survey data in the presence of misclassification error is considered. Approaches which use external information on misclassification rates are reviewed, together with alternative models for measurement error. We define categorical instrumental variables and propose methods for the identification and estimation of models including such variables by viewing the model as a restricted latent class model. The numerical properties of the implied instrumental variable estimators of flow rates are studied using data from the Panel Study of Income Dynamics.