Correcting sample selection bias with categorical outcomes

Abstract: In this paper, we propose a method for correcting sample selection bias when the outcome of interest is categorical, such as occupational choice, health status, or field of study. Classical approaches to sample selection rely on strong parametric distributional assumptions, which may be restrictive in practice. While the recent framework of Chernozhukov et al. (2023) offers a nonparametric identification using a local Gaussian representation (LGR) that holds for any bivariate joint distributions. This makes this approach limited to ordered discrete outcomes. We therefore extend it by developing a local representation that applies to joint probabilities, thereby eliminating the need to impose an artificial ordering on categories. Our representation decomposes each joint probability into marginal probabilities and a category-specific association parameter that captures how selection differentially affects each outcome. Under exclusion restrictions analogous to those in the LGR model, we establish nonparametric point identification of the latent categorical distribution. Building on this identification result, we introduce a semiparametric multinomial logit model with sample selection, propose a computationally tractable two-step estimator, and derive its asymptotic properties. This framework significantly broadens the set of tools available for analyzing selection in categorical and other discrete outcomes, offering substantial relevance for empirical work across economics, health sciences, and social sciences.