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

  • Alan Manning
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    This note provides a simple exposition of what IV can and cannot estimate in a model with abinary treatment variable and heterogeneous treatment effects. It shows how linear IV is amisspecification of functional form and the reason why linear IV estimates for this model willalways depend on the instrument used is because of this misspecification. It shows that if onecan estimate the correct functional form (non-linear IV) then the treatment effects areindependent of the instrument used. However, the data may not be rich enough in practice tobe able to identify these treatment effects without strong distributional assumptions. In thiscase, one will have to settle for estimates of treatment effects that are instrument-dependent.

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    File URL: http://cep.lse.ac.uk/pubs/download/dp0619.pdf
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    Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp0619.

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    Date of creation: Feb 2004
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    Handle: RePEc:cep:cepdps:dp0619
    Contact details of provider: Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP

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    1. James J. Heckman & Edward J. Vytlacil, 2000. "Local Instrumental Variables," NBER Technical Working Papers 0252, National Bureau of Economic Research, Inc.
    2. Imbens, Guido W & Angrist, Joshua D, 1994. "Identification and Estimation of Local Average Treatment Effects," Econometrica, Econometric Society, vol. 62(2), pages 467-75, March.
    3. Joshua Angrist, 2004. "Treatment Effect Heterogeneity in Theory and Practice," Econometric Society 2004 North American Winter Meetings 186, Econometric Society.
    4. Angrist, J.D. & Imbens, G.W., 1991. "Sources of identifying information in evaluation models," Discussion Paper 1991-42, Tilburg University, Center for Economic Research.
    5. Edward Vytlacil, 2002. "Independence, Monotonicity, and Latent Index Models: An Equivalence Result," Econometrica, Econometric Society, vol. 70(1), pages 331-341, January.
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