Structural Equation
The latent variable model is
Models
Structural equation models refer to general statisti-
cal procedures for multiequation systems that include
continuous latent variables (“factors” or “unmeasured
variables”), multiple indicators of concepts, errors
of measurement, errors in equations, and observed
variables that are continuous, ordinal, dichotomous
(binary), or censored (see Measurement Scale).
One way to view these models is as an interre-
lated system of regression equations where some
of the variables have multiple measures, and where
measurement error is taken into account when esti-
mating relationships (see Errors in Variables). From
another perspective, these are factor analysis mod-
els in which some factor loadings are restricted to
zero or other constants, and the researcher allows
factors to affect each other, directly and indirectly.
The most general form of the structural equation
model encompasses analysis of variance (ANOVA),
analysis of covariance (ANOCOVA), multiple lin-
ear regression, multivariate multiple regression,
seemingly unrelated regressions, recursive and nonre-
cursive simultaneous equations, path analysis, con-
firmatory factor analysis, classical test theory (see
Psychometrics, Overview), dichotomous and ordi-
nal probit, tobit, and a variety of other procedures
(see Quantal Response Models) as special cases.
Occasionally, the term “structural equation model”
refers to the simultaneous equation models of classi-
cal econometrics. Increasingly, though, it has come to
refer to its more general form. Covariance structure
models, LISREL models, analysis of moment struc-
measurement model.
η = α + Bη + ξ + ζ , (1)
where η is an m × 1 vector of latent endogenous
variables, ξ is an n × 1 vector of latent exogenous
variables, α is an m × 1 vector of intercept terms, B
is an m × m matrix of coefficients that give the influ-
ence of the ηs on each other,  is an m × n matrix of
coefficients for the effect of the ξ on η, and ζ is the
m × 1 vector of disturbances that contains the unex-
plained parts of the ηs. The term “endogenous” refers
to variables that are influenced by other variables in
the model. “Exogenous” describes variables that are
determined outside of the system of equations.
The model assumes that E(ζ ) = 0, that cov(ξ ,
ζ
) = 0, and that (I − B) is nonsingular. The
covariance matrix of the latent exogenous variables
is represented by an n × n matrix, , and the m × m
matrix  is the covariance matrix of the equation
disturbances, ζ . Implicit in (1) is a subscript to index
the observations. Since the same model holds for
all cases, the subscript is omitted to simplify the
notation.
The traditional LISREL notation has two equa-
tions for the measurement model:
y∗ = νy + y η + ε, (2)
∗
x = νx + x ξ + δ, (3)
where y∗ is the p × 1 vector of indicators of the
latent variables in η, νy is the p × 1 vector of inter-
cept terms, y is the p × m factor loading matrix
of coefficients giving the linear effect of η on y∗ ,
and ε is the p × 1 vector of measurement errors
or disturbances. The model assumes that E(ε) = 0
and that cov(η, ε
) = 0. The covariance matrix for
tures, and structural equations with latent or unob- ε is the p × p matrix, ε . Analogous definitions
served variables are largely interchangeable terms for
structural equation models.
Model and Notation
The structural equation models are represented
in a variety of notations, but researchers most
commonly use the one derived from Jöreskog [19,
20], Keesling [23], and Wiley [31]. It is called
the LISREL notation, named after Jöreskog &
Sörbom’s [22] software package. The model has
two primary components, a latent variable and a
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and assumptions hold for (3), with δ the q × q
covariance matrix for errors in x∗ . In addition, we
assume that ε, δ, and ζ are mutually uncorrelated
(see Correlation). Here too the observation index
is omitted, but is implicit. The disturbance or error
term for each equation in the latent variable or
measurement model typically has different variances
for different equations but, for a single equation,
the assumption is that the disturbance’s variance is
homoscedastic (see Scedasticity) and uncorrelated
across observations.
Eqs. (1)– (3) make up the classical form of
the LISREL model, in which it is assumed that
2 Structural Equation Models

the latent and observed variables are continuous where τ01 , τ11 , and τ21 are the three thresholds that
variables. More recently, Jöreskog & Sörbom [21], determine whether the ordinal y1 variable falls in the
Muthén [26], and others have generalized the model 1, 2, 3, or 4 category. Alternately, if the y4 variable
by allowing categorical or censored observed is censored from below, we would have
variables. In this case, some of the variables in y∗ 
0, if y4∗ ≤ 0,
and x∗ are “latent indicators” that are only observable y4 = (7)
through categorical or censored observed variables. y4∗ , if 0 < y4∗ .
Here the model requires an additional set of equations The single threshold point is zero and when y4∗ is
to link the observed variables to their underlying above zero, y4∗ and the observed y4 are the same. If
continuous counterparts: the observed variables are continuous, we have no
need for (4) and (5). But when we have noncontin-
y = f (y∗ , τy ), (4) uous observed variables, (4) and (5) are nonlinear,
deterministic equations that relate the observed vari-
x = f (x∗ , τx ), (5)
ables to their underlying continuous indicator.
Many of the more familiar statistical models are
where y and x are the vectors of observed variables, derivable from this general model. Table 1 illustrates
some or all of which can be categorical or censored, how restrictions on the general model can lead to
and τy and τx are vectors that contain threshold more familiar techniques. If, for instance, we assume
parameters that determine the values taken by y and a scalar, continuous dependent response variable, no
x, respectively. For instance, suppose that y1 is a four- measurement error in the dependent or explanatory
category ordinal variable. In this case, we would have variables, and only dummy explanatory variables,
 we are led to the restrictions shown in the first row
 1, if y1∗ ≤ τ01 , that leads to analysis of variance (ANOVA). Keep-

 2, if τ01 < y1∗ ≤ τ11 , ing the same restrictions, except allowing continuous
y1 = (6)
 3,
 if τ11 < y1∗ ≤ τ21 , or dummy explanatory variables, leads to multiple

4, if τ21 < y1∗ , regression. Probit regression has the same constraints

Table 1 Common statistical models as special cases of structural equation models (SEMs)
Statistical model νy y ε νx x δ y
∗
ANOVA 0 1 0 0 I 0 = y , scalar
Multiple regression 0 1 0 0 I 0 = y ∗ , scalar
Probit regression 0 1 0 0 I 0 1, 2, . . . , k
Tobit regression 0 1 0 0 I 0 = 0 if y ∗ ≤ 0
= y ∗ if y ∗ > 0
Classical econometrics 0 I 0 0 I
√ 0 = y∗
Classical factor analysis – – – – Diagonal –
(deviation scores) √ √
Confirmatory factor analysis – – – – –

Statistical model τy x τx α B  
√
ANOVA – Dummy variable – Scalar 0 √ Scalar
Multiple regression – Dummy/continuous – Scalar 0 √ Scalar
Probit regression (k − 1) Dummy/continuous – Scalar 0 √ Scalar
Tobit regression =0 Dummy/continuous – Scalar
√ 0
√ √ Scalar
√
Classical econometrics – Dummy/continuous –
Classical factor analysis C – Continuous – – – – –
(deviation scores)
Confirmatory factor analysis – Continuous – – – – –
√
, Present in model; – , absent from model.

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 Structural Equation Models 3

as multiple regression, except that we have a dichoto-

ζ2
mous or ordinal dependent variable (see Ordered ζ1
x1
Categorical Data). Classical econometrics is a spe-
g11
cial case of the model that assumes perfect measure-
ment and the absence of multiple indicators. From
g12 b21
this perspective, structural equation models have less x2 h1 h2
restrictive assumptions than many better known pro-
cedures. In addition, we can estimate many models l x 22 l x 32 l y 11 l y 22 l y 32
that are not treated by the traditional procedures.
x2 x3 y1 y2 y3

Steps in Modeling d2 d3 e1 e2 e3

An analysis that uses structural equation models has Figure 1 An hypothetical example of a structural equation
several components to it. These concern (i) model model with three latent variables and six observed variables
specification, (ii) the implied moment matrix, (iii)
identification, (iv) estimation, (v) model–data fit
regression constants that enter the equations for each
assessment, and (vi) respecification. These are
examined in the next six subsections. endogenous variable.
An alternative to the path diagram is to represent
the model specification using (1)–(3). In this specific
Model Specification example, (1) is
      
The first step is to specify the hypothesized relations η1 α1 0 0 η1
between all latent and observed variables. In other = +
η2 α2 β21 0 η2
words, the researcher needs to describe the specific     
form that all the matrices in Table 1 take for the γ γ12 ξ1 ζ
+ 11 + 1 , (8)
specific example of interest. Typically, not all of the 0 0 ξ2 ζ2
matrices are required, so that the task is simplified.
However, model specification requires the substantive (2) is
expertise of the analyst to be able to formulate a      0
x1 0 1 0
set of restrictions that defines the model. A person ξ1
x2 = νx2 + 0 λx22 + δ2 ,
who has little or no knowledge about the substantive ξ2
x3 νx3 0 λx32 δ3
area will not fare well with structural equation models (9)
(see Model, Choice of). and (3) is
A path diagram for a hypothetical example, to
      ε1
illustrate model specification, is shown in Figure 1. A y1 νy1 λy11 0
η1
more detailed description of path diagrams is given y2 = νy2 + 0 λy22 + ε2 .
η2
in the article on path analysis, but in brief it pro- y3 νy3 0 λy32 ε3
vides a pictorial representation of the multiequation (10)
model that a researcher specifies. The ovals or circles
enclose the latent variables, boxes signify observed The observed variables are continuous, so that (4)
variables, and the disturbances and error terms are and (5) are x = x∗ and y = y∗ . These relations are
not enclosed. The single-headed straight arrows indi- substituted into the above three equations. This also
cate a linear impact of the variable at the base of the means that we will not need any threshold param-
arrow on the variable at the head of the arrow. Curved eters (τx , τy ) in the model. In addition, (9) shows
two-headed arrows show linear covariances (correla- that x1 is perfectly measured (i.e., x1 = ξ1 ) and this
tions) between variables that are not explained within explains the use of x1 in place of ξ1 in the path
the model and they signify the covariances between diagram in Figure 1. The covariance matrices of the
exogenous variables or between disturbances/errors. exogenous variables and disturbances/errors are not
To simplify it, the diagram does not include the represented in path diagrams. In the example, these

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4 Structural Equation Models

matrices are y∗ (called y∗ y∗ (θ)), the lower right quadrant is the
  implied covariance matrix for x∗ (x∗ x∗ (θ)), and the
φ11 φ12
= , off-diagonal quadrants are the implied covariance
φ21 φ22
  matrices for y∗ with x∗ (x∗ y∗ (θ)).
ψ11 ψ12 The implied mean vector, µ(θ), is
= , (11)
ψ21 ψ22  
 ν + C(α + κ)
0 0 0 µ(θ) = y , (15)
νx + x κ
δ = 0 Θδ22 0 ,
0 0 Θδ33 where κ equals the mean vector of ξ [E(ξ ) = κ].
 These general expressions for the first and second
Θε11 0 0
ε = 0 Θε22 0 . (12) implied moments apply to any specific model. For
0 0 Θε33 the model in Figure 1, the implied covariance matrix
for y∗ is
The zero in the (1,1) position of δ follows since x1
contains no measurement error. If we had correlated y∗ y∗ (θ)
errors of measurement specified, then some of the  λ2 var(η ) 
y11 1
off-diagonal elements of δ or ε would contain
 +Θε11 
free parameters rather than zeros.  
 λy11 λy22 λ 2
var(η ) 
=  y22 2 ,
×β var(η ) +Θ 
Implied Moment Matrix  21 1 ε22 
 2 
λy11 λy32 λy22 λy32 λy32 var(η2 )
Once a model is specified, it implies that the first ×β21 var(η1 ) ×var(η2 ) +Θε33
and second moments (means, variances, and covari-
(16)
ances) of the observed variables are functions of the
model parameters. Few have examined the higher- with
order moments of the observed variables and their
relation to the model parameters. Most structural x∗ y∗ (θ)
equation models focus on the implied covariance  
matrix, (θ). The general expression for (θ) comes λy11 λy22 β21 λy32 β21
from the cov(z∗ , z∗
), where z∗
is [y∗
x∗
]. The link- ×cov(ξ1 , η1 ) ×cov(ξ1 , η1 ) ×cov(ξ1 , η1 ) 
 
 λx22 λy11 λx22 λy22 β21 λx22 λy32 β21 
age to the model parameters comes from substitution = 
×cov(ξ2 , η1 ) ×cov(ξ2 , η1 ) ×cov(ξ2 , η1 ) ,
of (3) in for x∗ and the reduced form equation in  
for y∗ ,  λ λ λx32 λy22 β21 λx32 λy32 β21 
x32 y11
×cov(ξ2 , η1 ) ×cov(ξ2 , η1 ) ×cov(ξ2 , η1 )
y∗ = νy + y (I − B)−1 (α + ξ + ζ ) + ε. (13)
(17)
The reduced form of an equation results by solving
and
the right-hand side of the equation, so that it con-
tains only exogenous variables, disturbances, errors, x∗ x∗ (θ)
and coefficient matrices. After these substitutions  φ 
and taking the cov(z∗ , z∗
), the implied covariance 11

matrix is  λx22 φ21 λ2x22 φ22 

 
  = +Θδ22 , (18)
C(
+ )C
+ ε C
x  
(θ) = ,  
x C
x 
x + δ λx32 φ21 λx32 λx22 φ22 λ2x22 φ22
(14) +Θδ33

where C = y (I − B)−1 and θ is the t × 1 vec- where

tor that contains all of the model parameters to be
var(η1 ) = γ11
2
φ11 + 2(γ11 γ12 φ12 )
estimated in a given model. The upper left quad-
rant of (θ) is the implied covariance matrix for + γ12
2
φ22 + ψ11 ,

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var(η2 ) = β21
2
var(η1 ) + ψ22 ,
cov(η1 , ξ1 ) = γ11 φ11 + γ12 φ12 ,
cov(η1 , ξ2 ) = γ11 φ12 + γ12 φ22 .
With these implied moment matrices we have a
one-to-one relation between a mean, variance, or
covariance of the observed variables and a function
of the parameters in the model. For instance, in
the model the variance of x2 equals λ2x22 φ22 + Θδ22 .
These connections are critical to the issues of model
identification, estimation, and fit assessment.
Model Identification
Model identification concerns the question whether
it is possible to determine uniquely the parameters
of a model from the means, variances, and covari-
ances of the observed variables (see Identifiability).
The last section gave the relation between these
moments and the model parameters. Identification
concerns whether it is possible to uniquely solve for
the model parameters in terms of the moments of the
observed variables using these equations. To illustrate
this point, consider a simple example with a single
observed variable, x1 , that equals ξ1 + δ1 . Here (θ)
has a single element, φ11 + Θδ11 and µ(θ) is κ1 , the
mean of ξ1 . The only second moment of the observed
variable is the population variance of x1 , and the sin-
gle first moment element is the population mean of
x1 , µx1 . The mean of x1 identifies κ1 , but the sin-
gle variance for x1 is insufficient to identify the two
parameters, φ11 and Θδ11 . For any given value of the
variance of x1 , an infinite set of values of φ11 and
Θδ11 would satisfy the equation for the implied vari-
ance. The model is underidentified. More generally,
if in a model θa and θb are any two sets of values for
θ such that (θa ) = (θb ) and µ(θa ) = µ(θb ), then
θa = θb must be true if the model is identified.
A necessary but not sufficient condition for iden-
tifying a model is that the researcher must assign
a scale to each latent variable that is measured with
error. One way to do this is to choose an indicator for
each latent variable and set the coefficient or factor
loading for the indicator to one. The intercept for the
same observed variable should be set to zero. With
this scaling, the latent variable has a metric that is
similar to that of the observed variable. In the model
in Figure 1, for instance, we could set λx11 , λy11 , and
λy22 to 1, and set νx11 , νy11 , and νy22 to zero to assign
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DOI: 10.1002/0470011815.b2a13089
Structural Equation Models 5
scales to ξ1 , η1 , and η2 . An alternate method to scale
the latent variable is to set the variance of the latent
variable to one and its mean to zero. This latter option
(19) is less desirable when analyzing panel data or when
testing whether models are the same across different
groups.
Establishing model identification in the general
structural equation model can be difficult. Algebraic
manipulation of the implied moment equations can
sometimes establish that each model parameter has a
unique solution in terms of the means, variances, or
covariances of the observed variables. In complicated
models, this becomes less feasible. In special cases,
such as the classical econometric model or confirma-
tory factor analysis, there are rules of identification
that are helpful or that researchers can combine
to establish model identification (see, for exam-
ple, Fisher [13]; Bollen [6, pp. 88–104, 238–254,
326–333]). Also widely used are empirical checks
on model identification that are based on whether the
information matrix of the model parameters from a
maximum likelihood solution is nonsingular. Singu-
larity suggests that the model is underidentified. In
most cases the empirical tests of identification work
well, but it is possible for them to fail (see, for exam-
ple, Bollen [6, pp. 246–251]).
Estimation
The earliest developments of structural equation mod-
els assumed that y and x were continuous and multi-
normally distributed. The maximum likelihood esti-
mator under this assumption is
FML = ln |(θ)| + tr(S −1 (θ))
+ (z − µ(θ))
 −1 (θ)(z − µ(θ))
− ln(|S|) − (p + q),
where S is the sample covariance matrix of the
observed variables and z is the vector of sample
means of the observed variables. Numerical mini-
mization procedures find the θ̂ that minimizes FML .
The θ̂ has the usual maximum likelihood estimator
properties of being asymptotically unbiased, asymp-
totically efficient, consistent, asymptotically normal,
and an asymptotic covariance matrix that is the
inverse of the information matrix of θ̂ (see Large-
sample Theory).
Fortunately, the θ̂ from FML retains many of its
desirable properties under some conditions when y
6 Structural Equation Models
and x are not from multinormal distributions. For
instance, if x = ξ – that is, x is exogenous – then
the usual properties hold assuming that the distur-
bances, ζ and ε, are from multinormal distribu-
tions. Even if x does not equal ξ and y and x
are nonnormal, θ̂ remains a consistent estimator.
Corrections to the asymptotic standard errors from
the usual maximum likelihood procedures also are
available (see, for example, [9] and [28]). Further-
more, there are robustness conditions under which
the usual maximum likelihood asymptotic standard
errors and significance tests hold for observed vari-
ables from nonnormal distributions (see, for example,
Sattora [27]).
Another class of estimators are explicitly designed
to take account of nonnormality rather than relying on
robustness conditions or correcting standard errors.
For instance, Browne [9] proposed an asymptotically
distribution free estimator (also called the weighted
least squares) that applies to observed variables
from distributions with finite eighth-order moments.
Although the estimator appears to work well in mod-
erately large samples with models that do not involve
many parameters, the performance of this estimator
has been disappointing in large models. An instru-
mental variable estimator, two-stage least squares,
is a limited information estimator that also does
not require observed variables from multinormal dis-
tributions. Hägglund [16] developed this estimator
for factor analysis models with uncorrelated errors
of measurement. Recent work proposed a two-stage
least squares estimator for all the coefficients of
both the measurement model and the latent vari-
able model with or without correlated errors of
measurement [7]. The two-stage least squares esti-
mator has known asymptotic properties including
standard errors that allow significance tests with-
out assuming multivariate normality of the observed
variables. The finite sample properties of the esti-
mator are not well studied in latent variable mod-
els.
The estimation of parameters is more complicated
when some of the endogenous observed variables
are categorical. This would be the case if the
indicators of a latent variable are ordinal, censored,
or dichotomous variables, or in other situations in
which the “dependent” variable of a relationship
is noncontinuous. Analysts have proposed several
approaches to incorporate such variables into a
structural equation model, but they all share a similar
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strategy. It is assumed that all observed endogenous
noncontinuous variables have underlying continuous
variables that correspond to them. So, for example,
we assume that underlying our five-point ordinal
scale on self-reported health is a continuous variable
of perceived health. The first step is the estimation of
the correlation (covariance) matrix of the continuous
variables that underlie the noncontinuous observed
variables. The next step takes this matrix and analyzes
it with the arbitrary distribution function (weighted
least squares) estimator. Thus the main difference
when endogenous categorical variables are part of the
analysis is that we take the extra step of estimating
what the correlation (covariance) matrix would look
like if these variables were measured on continuous
scales.
Model–Data Fit
Once the researcher estimates a model, attention turns
to assessing its goodness of fit. Model fit assessments
have two parts: (1) overall fit and (2) component
fit. Overall fit refers to summary measures of how
well the model as a whole corresponds to the data.
The most widely used measure of overall fit is a
test statistic (see Hypothesis Testing) that asymp-
totically approaches a chi-square distribution when
the population covariance matrix equals the implied
covariance matrix; that is, the null hypothesis is
H0 :  = (θ). In the case of FML described above,
the test statistic is T = (N − 1)FML , evaluated at
the final parameter estimates. The degrees of free-
dom equal 12 (p + q)(p + q + 3) − t, where p and
q are the number of y and x variables and t is
the number of unrestricted parameters estimated.
The first term gives the number of nonredundant
elements in the covariance matrix of the observed
variables and the number of sample means. If the
distributional assumptions of the test are satisfied,
a significant value of the test statistic suggests that
the model is misspecified (see Misspecification). In
large samples the power of the significance tests
is sometimes so great that even trivial departures
lead to rejection of H0 . In small samples, the power
of the test might be too weak to detect prob-
lems.
In response to these difficulties a variety of
other overall fit measures have arisen. The residual
matrices, S − (θ̂ ) and z − µ(θ̂), are two simple
measures. These values show the departures of

the observed and the predicted covariance matrices
and mean vectors of the observed variables.
Standardization of the residuals that take account of
the scaling of the observed variables or the standard
errors of the residuals are sometimes employed.
Numerous other overall fit measures appear in the
literature. Most are normed to range approximately
from 0 to 1, where the value of 1 represents an ideal
fit. The fit indices are the subject of debate in the
literature on structural equation models (e.g. Bollen
& Long [8]).
A second type of fit assessment occurs for the
components of the model rather than the overall fit of
the model. These components of fit are ones that are
familiar to researchers using regression techniques.
Researchers examine such things as the signs and
the significance of coefficients, variances, and covari-
ances, and the R-squares for equations. They also
check for “improper” solutions such as negative vari-
ances or correlations greater than one.
Respecification
It is not unusual to find that an initial model speci-
fication provides an inadequate match to the data. A
common reaction is to attempt to improve the model.
Once the researcher enters this more exploratory
mode of analysis, the usual significance tests cannot
be interpreted in the usual way. It is then important
to seek to replicate the final model on an independent
data set. The substantive expert of the research is the
most valuable source for possible modifications of
the initial model. It is not unusual for the analysts to
have considered several plausible relationships that
were excluded from the initial model. These mod-
ifications are natural ones to consider, if the initial
model fit is poor.
Empirical methods that can help in respecifi-
cation also are available. The residual covariance
matrix and mean vector described above show poorly
fit parts of the data. But care must be taken in
using such residuals [10]. Other aids are Lagrangian
multiplier (and Wald) test statistics, that estimate
the decrease (increase) in the chi-square test statis-
tic for the freeing up (restricting) one or more
parameters at a time [2]. Too great a reliance on
these empirical methods can lead to problems (e.g.
MacCallum [25]), but when used in conjunction
with substantive expertise, they can prove help-
ful.
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Structural Equation Models 7
Historical Origins
We can trace the ancestry of contemporary structural
equation models to several sources: Sewall Wright’s
(1918 [32], 1921 [33], and 1925 [34]) path analysis,
the factor analysis tradition in psychometrics, simul-
taneous equation work in econometrics, and the 1960s
and early 1970s synthesis of these areas in sociomet-
rics. Although contemporary structural equation mod-
els are distinct in many ways, Wright’s path analysis
is probably the closest relative. Path analysis begins
with a model specified prior to estimation. It provides
a method of testing the consistency of a model to the
data and a method to trace the influences of variables
through a system of equations. The path diagram
invented by Wright in 1921 [33] is a pictorial rep-
resentation of the model. It provides a simple way to
represent the complex relations between a large num-
ber of latent or observed variables. These diagrams
are standard in structural equation models. Wright
also used these diagrams to distinguish the direct,
indirect, and total effects of one variable on another.
The direct effects are the influences of one variable on
another that do not pass through any other variable.
The indirect effect is an impact that is through at least
one other variable, while the total effect is the sum
of the direct and indirect effects of one variable on
another. This decomposition of effects is still part of
structural equation models, although researchers have
elaborated the definitions to include reciprocal rela-
tions and the presence of latent variables and have
debated their “causal” meaning (see Causal Direc-
tion, Determination).
Another lasting influence of Wright’s path
analysis is the practice of writing the variances
and covariances between variables as functions of
the model parameters (e.g. coefficients, variances,
and covariances of exogenous variables and
disturbances). Wright used these relations to explore
issues of model identification and the estimation of
the parameters in a path model. Through examples,
he demonstrated how path analysis could incorporate
latent variables (factors), reciprocal relations, and
recursive relations into statistical models. See the
entry on path analysis for further details.
Wright’s [32] first application of path analysis,
appearing in 1918, was a factor analysis of bone size
measurements. Unknown to Wright, Spearman [29]
had proposed factor analysis over a decade ear-
lier to analyze whether a general intelligence factor
8 Structural Equation Models
underlied individuals’ performances on tests. Spear-
man’s work launched the beginning of the factor anal-
ysis tradition in psychometrics. Factor analysts soon
moved from single to multiple-factor solutions and
developed various methods of “rotating factors” to
improve interpretability (see Rotation of Axes). Psy-
chometricians became the most experienced group in
the analysis of latent variables measured with mul-
tiple indicators. Some applied factor analysis to test
prior hypotheses about the dimensionality of mea-
sures. However, most researchers used factor analysis
as a data reduction tool, in which the number of
factors and the pattern of influences of the latent vari-
ables on the observed variables were determined by
the statistical procedures rather than by being speci-
fied in advance.
A related but separate development in psycho-
metrics was classical test theory [24]. It shared with
factor analysis a concern with latent or true score
variables, but each observed variable was a func-
tion of a true score and error rather than being
possibly influenced by multiple factors. In addition,
factor analysis conceives of each variable as having
a specific variance that is distinct from the factors
and separate from the pure random error. The true
score from classical test theory would include spe-
cific variance as part of the true score, not a part
of the residual term. Classical test theory developed
distinct definitions and approaches to the reliabil-
ity and validity of measures. And these concepts of
reliability and validity still hold influence in contem-
porary structural equation modeling, although such
models lead to far more general relations between
variables than those included in classical test the-
ory by allowing correlated errors of measurement
and multiple latent variables to influence observed
variables.
The contribution of econometrics to structural
equation modeling comes largely from its work
on simultaneous equations. These models focused
on observed rather than latent random variables.
They dealt with issues of identification and esti-
mation of a system of equations [15]. Econometri-
cians proposed general rules of identification for
simultaneous equations [13] that systematized the
study of this issue and greatly influenced the
contemporary perspective on identification in the
more general structural equation models. Similarly,
econometricians’ work on limited information (e.g.
Theil [30] and Basmann [1]) and full information
Encyclopedia of Biostatistics, Online © 2005 John Wiley & Sons, Ltd.
This article is © 2005 John Wiley & Sons, Ltd.
This article was published in the Encyclopedia of Biostatistics in 2005 by John Wiley & Sons, Ltd.
DOI: 10.1002/0470011815.b2a13089
estimators [18] led to the more sophisticated estima-
tors that are commonly applied to structural equation
models.
In the 1960s and early 1970s, sociometrics set
the stage for the cross fertilization of path anal-
ysis, factor analysis, and econometric models that
eventually merged into the contemporary form of
structural equation models. Blalock [4], for instance,
demonstrated the power of path analysis and par-
tial correlations in examining a researcher’s model
of hypothesized relationships. Duncan’s [11] didac-
tic paper on path analysis in 1966 had a tremen-
dous impact on the spread of path analysis in soci-
ology as well as in psychology and other disci-
plines. Duncan et al. [12] illustrated the synthesis
of latent variable and simultaneous equation mod-
els using path analysis in a classic 1968 study of
peer influence. In 1969, Heise [17] shed new light
on the use of panel data to explore reliability and
stability in the measurement of variables. A clas-
sic 1971 edited volume by Blalock [5] illustrates
the early merging of these techniques and the dif-
fusion of statistical approaches from one field to
another.
Although separated by only a couple of years, a
1973 edited volume by Goldberger & Duncan [14]
revealed the more sophisticated approach to struc-
tural equation models that now dominates the field.
Included in the volume is the highly influential paper
by Karl Jöreskog, where he presented an early ver-
sion of the LISREL model. The papers marked a more
general approach to model specification, the implied
covariance matrix, identification, estimation, and test-
ing that is typical of current research.
Structural equation models have diffused through
most of the social sciences and have begun to
appear in the biostatistics and public health literature.
Numerous software packages to estimate structural
equation models are available with LISREL [22] and
EQS [3] being the two most widely used ones. Pub-
lications using structural equation models are com-
mon in sociology, marketing, psychology, and edu-
cation, and the technical literature continues to grow.
Structural Equation Modeling is a journal devoted
to the technique, but other statistical journals also
publish work in this area. SEMNET is a listserver
devoted to structural equation models and to date
has over 1400 subscribers. Structural equation mod-
els remains an active area of research and applica-
tions.
 Structural Equation Models 9

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KENNETH A. BOLLEN

Encyclopedia of Biostatistics, Online © 2005 John Wiley & Sons, Ltd.

This article is © 2005 John Wiley & Sons, Ltd.
This article was published in the Encyclopedia of Biostatistics in 2005 by John Wiley & Sons, Ltd.
DOI: 10.1002/0470011815.b2a13089