Bayesian endogeneity bias modeling

•Model for endogeneity bias using a prior distribution for endogenous regressors.•Method-of-moments and Ridge penalized shrinkage regression estimator.•Based on imposing a prior on the moment conditions for the endogenous regressors.•Shrinkage of the endogenous regressor coefficients only.•We show the estimator's comparison with a Bayesian estimator.

We propose to model endogeneity bias using prior distributions of moment conditions. The estimator can be obtained both as a method-of-moments estimator and in a Ridge penalized regression framework. We show the estimator's relation to a Bayesian estimator.