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Local Instrumental Variables

  • James J. Heckman
  • Edward J. Vytlacil

This paper unites the treatment effect literature and the latent variable literature. The economic questions answered by the commonly used treatment effect parameters are considered. We demonstrate how the marginal treatment effect parameter can be used in a latent variable framework to generate the average treatment effect, the effect of treatment on the treated and the local average treatment effect, thereby establishing a new relationship among these parameters. The method of local instrumental variables directly estimates the marginal treatment effect parameters, and thus can be used to estimate all of the conventional treatment effect parameters when the index condition holds and the parameters are identified. When they are not, the method of local instrumental variables can be used to produce bounds on the parameters with the width of the bounds depending on the width of the support for the index generating the choice of the observed potential outcome.

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File URL: http://www.nber.org/papers/t0252.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Technical Working Papers with number 0252.

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Date of creation: Apr 2000
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Handle: RePEc:nbr:nberte:0252
Note: TWP
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  1. 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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