English

Inference under First-Order Degeneracy

Econometrics 2026-02-10 v1

Abstract

We study inference in models where a transformation of parameters exhibits first-order degeneracy -- that is, its gradient is zero or close to zero, making the standard delta method invalid. A leading example is causal mediation analysis, where the indirect effect is a product of coefficients and the gradient degenerates near the origin. In these local regions of degeneracy the limiting behaviors of plug-in estimators depend on nuisance parameters that are not consistently estimable. We show that this failure is intrinsic -- around points of degeneracy, both regular and quantile-unbiased estimation are impossible. Despite these restrictions, we develop minimum-distance methods that deliver uniformly valid confidence intervals. We establish sufficient conditions under which standard chi-square critical values remain valid, and propose a simple bootstrap procedure when they are not. We demonstrate favorable power in simulations and in an empirical application linking teacher gender attitudes to student outcomes.

Keywords

Cite

@article{arxiv.2602.07377,
  title  = {Inference under First-Order Degeneracy},
  author = {Xinyue Bei and Manu Navjeevan},
  journal= {arXiv preprint arXiv:2602.07377},
  year   = {2026}
}
R2 v1 2026-07-01T10:25:42.276Z