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Instrumental Variables and the Search for Identification: From Supply and Demand to Natural Experiments

Author

Listed:
  • Joshua D. Angrist

    (Massachusetts Institute of Technology)

  • Alan B. Krueger

    (Princeton University)

Abstract

Instrumental variables was first used in the 1920s to estimate supply and demand elasticities and later to correct for measurement error in single equation models. Recently, instrumental variables have been widely used to reduce bias from omitted variables in estimates of causal relationships. Intuitively, instrumental variables methods use only a portion of the variability in key variables to estimate the relationships of interest; if the instruments are valid, that portion is unrelated to the omitted variables. We discuss the mechanics of instrumental variables and the qualities that make for a good instrument, devoting particular attention to instruments derived from "natural experiments."

Suggested Citation

  • Joshua D. Angrist & Alan B. Krueger, 2001. "Instrumental Variables and the Search for Identification: From Supply and Demand to Natural Experiments," Working Papers 834, Princeton University, Department of Economics, Industrial Relations Section..
    • Handle: RePEc:pri:indrel:455
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    References listed on IDEAS

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    Keywords

    instrumental variables; natural experiment;

    JEL classification:

    • C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General

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