The Properties, Advantages, and Assumption of 3SLS Approach:

The properties of 3SLS approach are as follows:

1. The 3SLS estimates are consistent.
2. The 3SLS estimates are more efficient as compare to 2SLS estimates given that
system is correctly specified.

The advantages of 3SLS approach are as follows:

1. Firstly, 3SLS reduces simultaneity bias.
2. Secondly, 3SLS takes into account correlation between residuals of different
equations therefore gives more efficient estimates.
After highlighting procedural steps, properties and advantages of 3SLS approach now we are going
to mention pre-requisites of 3SLS approach which are as follows:
1. Problem of simultaneity must exist in the model.
2. Test for exogeneity should be applied.
3. All equations appeared in the model must be correctly specified.
4. The error term of each equation of the simultaneous model is serially
independent.
5. In simultaneous model it is expected that i (residual of ith equation) is correlated
with j (residual of jth equation). If there exist no correlation then 3SLS reduces to 2SLS.
6. All equations of the model should be over-identified. All those equations which are
unidentified should be drooped as well as identities should be removed.
After discussing assumptions of 3SLS now we will briefly discuss methodology related to
each assumption that is utilized to fulfill these pre-requisites.