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A cautionary tale about control variables in IV estimation

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  • Deuchert, Eva

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  • Huber, Martin

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Abstract

Many instrumental variable (IV) regressions include control variables to justify (conditional) independence of the instrument and the potential outcomes. The plausibility of conditional IV independence crucially depends on the timing when the control variables are determined. This paper systemically works through different IV models and discusses the (conditions for the) satisfaction of conditional IV independence when controlling for covariates measured (a) prior to the instrument, (b) after the treatment, or (c) both. To illustrate these identification issues, we consider an empirical application using the Vietnam War draft risk as instrument either for veteran status or education to estimate the effects of these variables on labor market and health outcomes.

Suggested Citation

  • Deuchert, Eva & Huber, Martin, 2014. "A cautionary tale about control variables in IV estimation," Economics Working Paper Series 1439, University of St. Gallen, School of Economics and Political Science.
  • Handle: RePEc:usg:econwp:2014:39
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    Citations

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    Cited by:

    1. Bratti, Massimiliano & Mendola, Mariapia & Miranda, Alfonso, 2015. "Hard to Forget: The Long-Lasting Impact of War on Mental Health," IZA Discussion Papers 9269, Institute of Labor Economics (IZA).
    2. Eva Deuchert & Martin Huber & Mark Schelker, 2016. "Direct and Indirect Effects Based on Difference-in-Differences with an Application to Political Preferences Following the Vietnam Draft Lottery," CESifo Working Paper Series 6000, CESifo Group Munich.
    3. Aepli, Manuel, 2019. "Technological change and occupation mobility: A task-based approach to horizontal mismatch," GLO Discussion Paper Series 361, Global Labor Organization (GLO).

    More about this item

    Keywords

    Instrument; control variables; conditional independence; covariates;

    JEL classification:

    • C26 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Instrumental Variables (IV) Estimation
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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