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What Do Instrumental Variable Models Deliver with Discrete Dependent Variables?

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  • Andrew Chesher
  • Adam M. Rosen

Abstract

We compare nonparametric instrumental variables (IV) models with linear models and 2SLS methods when dependent variables are discrete. A 2SLS method can deliver a consistent estimator of a Local Average Treatment Effect but is not informative about other treatment effect parameters. The IV models set identify a range of interesting structural and treatment effect parameters. We give set identification results for a counterfactual probability and an Average Treatment Effect in a IV binary threshold crossing model. We illustrate using data on female employment and family size (employed by Joshua Angrist and William Evans (1998)) and compare with their LATE estimates.

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  • Andrew Chesher & Adam M. Rosen, 2013. "What Do Instrumental Variable Models Deliver with Discrete Dependent Variables?," American Economic Review, American Economic Association, vol. 103(3), pages 557-562, May.
    • Handle: RePEc:aea:aecrev:v:103:y:2013:i:3:p:557-62
    Note: DOI: 10.1257/aer.103.3.557
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    References listed on IDEAS

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    1. Andrew Chesher, 2003. "Identification in Nonseparable Models," Econometrica, Econometric Society, vol. 71(5), pages 1405-1441, September.
    2. Arthur Lewbel & Yingying Dong & Thomas Tao Yang, 2012. "Comparing features of convenient estimators for binary choice models with endogenous regressors," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 45(3), pages 809-829, August.
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    6. Angrist, Joshua D & Evans, William N, 1998. "Children and Their Parents' Labor Supply: Evidence from Exogenous Variation in Family Size," American Economic Review, American Economic Association, vol. 88(3), pages 450-477, June.
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    8. Andrew Chesher, 2010. "Instrumental Variable Models for Discrete Outcomes," Econometrica, Econometric Society, vol. 78(2), pages 575-601, March.
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    12. Dewatripont,Mathias & Hansen,Lars Peter & Turnovsky,Stephen J. (ed.), 2003. "Advances in Economics and Econometrics," Cambridge Books, Cambridge University Press, number 9780521524131.
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    10. Andrew Chesher & Adam Rosen, 2018. "Generalized instrumental variable models, methods, and applications," CeMMAP working papers CWP43/18, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
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    14. Öberg, Stefan, 2021. "The casual effect of fertility: The multiple problems with instrumental variables for the number of children in families," SocArXiv peuvz, Center for Open Science.

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    JEL classification:

    • C26 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Instrumental Variables (IV) Estimation

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