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INSTRUMENTAL VARIABLES METHODS WITH HETEROGENEITY AND MISMEASURED INSTRUMENTS

  • Karim Chalak (a1)
Abstract

We study the consequences of substituting an error-laden proxy W for an instrument Z on the interpretation of Wald, local instrumental variable (LIV), and instrumental variable (IV) estimands in an ordered discrete choice structural system with heterogeneity. A proxy W need only satisfy an exclusion restriction and that the treatment and outcome are mean independent from W given Z. Unlike Z, W need not satisfy monotonicity and may, under particular specifications, fail exogeneity. For example, W could code Z with error, with missing observations, or coarsely. We show that Wald, LIV, and IV estimands using W identify weighted averages of local or marginal treatment effects (LATEs or MTEs). We study a necessary and sufficient condition for nonnegative weights. Further, we study a condition under which the Wald or LIV estimand using W identifies the same LATE or MTE that would have been recovered had Z been observed. For example, this holds for binary Z and therefore the Wald estimand using W identifies the same “average causal response,” or LATE for binary treatment, that would have been recovered using Z. Also, under this condition, LIV using W can be used to identify MTE and average treatment effects for e.g., the population, treated, and untreated.

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*Address correspondence to Karim Calak, Department of Economics, University of Virginia, P.O. Box 400182, Charlottesville, VA 22904-4182, email: chalak@virginia.edu.
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Econometric Theory
  • ISSN: 0266-4666
  • EISSN: 1469-4360
  • URL: /core/journals/econometric-theory
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