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In a Monte Carlo experiment we show that using a small probability of Type I error may lead to reduced pretest estimator MSE when a Hausman pretest is used to choose between least squares and instrumental variables estimators.
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Often, authors report materially different OLS and spatial error model estimates. However, under the null of correct specification, these estimates should be similar. We propose a spatial Hausman test and conduct a Monte Carlo experiment to examine its performance.
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