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Instrumental variables for binary treatments with heterogeneous treatment effects: a simple exposition

Manning, Alan (2004) Instrumental variables for binary treatments with heterogeneous treatment effects: a simple exposition. CEPDP, 619. Centre for Economic Performance, London School of Economics and Political Science, London, UK. ISBN 0753017210

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Abstract

This note provides a simple exposition of what IV can and cannot estimate in a model with a binary treatment variable and heterogeneous treatment effects. It shows how linear IV is a misspecification of functional form and the reason why linear IV estimates for this model will always depend on the instrument used is because of this misspecification. It shows that if one can estimate the correct functional form (non-linear IV) then the treatment effects are independent of the instrument used. However, the data may not be rich enough in practice to be able to identify these treatment effects without strong distributional assumptions. In this case, one will have to settle for estimates of treatment effects that are instrument-dependent.

Item Type: Monograph (Discussion Paper)
Official URL: http://cep.lse.ac.uk
Additional Information: © 2004 Alan Manning
Library of Congress subject classification: H Social Sciences > HB Economic Theory
Journal of Economic Literature Classification System: C - Mathematical and Quantitative Methods > C2 - Econometric Methods: Single Equation Models; Single Variables
Sets: Collections > Economists Online
Research centres and groups > Centre for Economic Performance (CEP)
Departments > Economics
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Identification Number: 619
Date Deposited: 26 Jul 2008 13:33
URL: http://eprints.lse.ac.uk/19983/

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