Control function (econometrics)

In econometrics, a control function is a technique used to address endogeneity issues in regression analysis, particularly when one or more independent variables are correlated with the error term. Endogeneity can arise due to omitted variable bias, measurement error, or simultaneous causality, and it can lead to biased and inconsistent estimates of the parameters in a model. The control function approach helps mitigate these issues by incorporating an additional variable (the control function) that captures the unobserved factors that are causing the endogeneity.