Identification Problem

The Identification Problem arises in econometric models when it is not possible to uniquely estimate the parameters of an equation due to insufficient information. This issue often occurs in Simultaneous Equation Models, where multiple equations interdepend on each other.

Types of Identification:

1. Under-Identified: The model lacks enough information to estimate parameters.
2. Exactly Identified: Sufficient information is available to estimate parameters uniquely.
3. Over-Identified: More information than necessary is available, requiring additional methods like instrumental variables to estimate parameters.

Solution:

The rank condition or order condition is used to check if a model is identifiable. Techniques like Two-Stage Least Squares (2SLS) can help in estimation when identification is a challenge.