instrumental variable estimation

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1、6.InstrumentalVariableEstimationSummaryInstrumentalvariable(IV)methodsallowforendogeneityinindividualparticipation,programplacement,orboth.Withpaneldata,IVmethodscanallowfortime-varyingselectionbias.Measurementerrorthatresultsinattenuationbiascanalsoberesolvedthroughthisprocedure.TheIV

2、approachinvolvesfindingavariable(orinstrument)thatishighlycorrelatedwithprogramplacementorparticipationbutthatisnotcor-relatedwithunobservedcharacteristicsaffectingoutcomes.Instrumentscanbecon-structedfromprogramdesign(forexample,iftheprogramofinterestwasrandomizedorifexogenousruleswere

3、usedindeterminingeligibilityfortheprogram).Instrumentsshouldbeselectedcarefully.Weakinstrumentscanpotentiallyworsenthebiasevenmorethanwhenestimatedbyordinaryleastsquares(OLS)ifthoseinstru-mentsarecorrelatedwithunobservedcharacteristicsoromittedvariablesaffectingtheoutcome.Testingforwea

4、kinstrumentscanhelpavoidthisproblem.Anotherproblemcanariseiftheinstrumentstillcorrelateswithunobservedanticipatedgainsfromtheprogramthataffectparticipation;localaveragetreatmenteffects(LATEs)basedontheinstrumentscanhelpaddressthisissue.LearningObjectivesAftercompletingthischapter,there

5、aderwillbeabletodiscuss■Howinstrumentalvariablescanresolveselectionbiasinparticipation,programplacement,orboth■HowtheIVapproachdiffersinassumptionsfrompropensityscorematching(PSM)anddouble-difference(DD)methods■Whatsourcesareavailableforfindinggoodinstruments■Howtotestforweakinstruments

6、■WhatthedifferenceisbetweenstandardIVmethodsandtheLATEIntroductionThishandbooknowturnstomethodsthatrelaxtheexogeneityassumptionofOLSorPSMandthatarealsorobusttotime-varyingselectionbias,unlikeDD.Remember87HandbookonImpactEvaluationthatforDDmethodsonecannotcontrolforselectionbiasthatchan

7、gesovertime(chapter5).Byrelaxingtheexogeneityassumption,theIVmethodmakesdifferentidentifyingassumptionsfromthepreviousmethods—althoughassumptionsunderly-ingIVmaynotapplyinallcontexts.Recallthesetupdiscussedinchapter2ofanestimatingequationthatcomparesoutcomesoftreatedandnontreatedgrou