Characterizing the Instrumental Variable Identifying Assumption as Sample Selection Conditions
AbstractWe build on Rosenzweig and Wolpin (2000) and Keane (2010) and show that in order to fulfill the Instrumental variable (IV) identifying moment condition, a policy must be designed so that compliers and non-compliers either have the same average error term, or have an error term ratio equal to their relative share of the population. The former condition (labeled Choice Orthogonality) is essentially a no-selection condition. The latter one, referred to as Weighted Opposite Choices, may be viewed as a distributional (functional form) assumption necessary to match the degree of selectivity between compliers and noncompliers to their relative population proportions. Those conditions form a core of implicit IV assumptions that are present in any empirical applications. They allow the econometrician to gain substantial insight about the validity of a specific instrument, and they illustrate the link between identification and the statistical strength of an instrument. Finally, our characterization may also help designing a policy generating a valid instrument.
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Bibliographic InfoPaper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 6339.
Length: 23 pages
Date of creation: Feb 2012
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Other versions of this item:
- Christian Belzil & Jörgen Hansen, 2012. "Characterizing the Instrumental Variable Identifying Assumption as Sample Selection Conditions," Working Papers hal-00753539, HAL.
- B4 - Schools of Economic Thought and Methodology - - Economic Methodology
- C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
- C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
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