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Instrumental Variables for Binary Treatments with Heterogenous Treatment Effects: A Simple Exposition

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  • Manning Alan

    ()
    (a.manning@lse.ac.uk)

Abstract

This note provides a simple exposition of what IV can and cannot estimate in a model with binary treatment variable and heterogenous treatment effects. It shows how linear IV is essentially a misspecification of functional form and the reason why linear IV estimates will generally depend on the instrument used is because of this misspecification. It shows that if one can estimate the correct functional form then the treatment effects are independent of the instruments used. However, the data may not be rich enough in practice to be able to identify these treatments effects without strong distributional assumptions. In this case, one will have to settle for estimations of treatment effects that are instrument-dependent.

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File URL: http://www.degruyter.com/view/j/bejeap.2003.3.issue-1/bejeap.2004.3.1.1273/bejeap.2004.3.1.1273.xml?format=INT
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Bibliographic Info

Article provided by De Gruyter in its journal The B.E. Journal of Economic Analysis & Policy.

Volume (Year): 3 (2004)
Issue (Month): 1 (July)
Pages: 1-14

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Handle: RePEc:bpj:bejeap:v:contributions.3:y:2004:i:1:n:9

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Web page: http://www.degruyter.com

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Cited by:
  1. Florence Kondylis, 2007. "Conflict-Induced Displacement and Labour Market Outcomes: Evidence from Post-War Bosnia and Herzegovina," CEP Discussion Papers dp0777, Centre for Economic Performance, LSE.
  2. Kondylis, Florence, 2010. "Conflict displacement and labor market outcomes in post-war Bosnia and Herzegovina," Journal of Development Economics, Elsevier, vol. 93(2), pages 235-248, November.
  3. Rohini Pande & Christopher Udry, 2005. "Institutions and Development:A View from Below," Working Papers 928, Economic Growth Center, Yale University.
  4. Dong, Yingying, 2010. "Kept back to get ahead? Kindergarten retention and academic performance," European Economic Review, Elsevier, vol. 54(2), pages 219-236, February.
  5. Lavinia Cristescu, 2009. "The Effect of Capital Market Liberalization in Eastern Europe: Economic Growth or Financial Crisis," Advances in Economic and Financial Research - DOFIN Working Paper Series 30, Bucharest University of Economics, Center for Advanced Research in Finance and Banking - CARFIB.

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