Identification of Local Treatment Effects Using a Proxy for an Instrument

Karim Chalak ()

No 738, Boston College Working Papers in Economics from Boston College Department of Economics

Abstract: The method of indirect least squares (ILS) using a proxy for a discrete instrument is shown to identify a weighted average of local treatment effects. The weights are nonnegative if and only if the proxy is intensity preserving for the instrument. A similar result holds for instrumental variables (IV) methods such as two stage least squares. Thus, one should carefully interpret estimates for causal effects obtained via ILS or IV using an error-laden proxy of an instrument, a proxy for an instrument with missing or imputed observations, or a binary proxy for a multivalued instrument. Favorably, the proxy need not satisfy all the assumptions required for the instrument. Specifically, an individual's proxy can depend on others' instrument and the proxy need not affect the treatment nor be exogenous. In special cases such as with binary instrument, ILS using any suitable proxy for an instrument identifies local average treatment effects.

Keywords: causality; compliance; indirect least squares; instrumental variables; local average treatment effect; measurement error; proxy; quadrant dependence; two stage least squares. (search for similar items in EconPapers)
JEL-codes: C21 C25 C31 C35 (search for similar items in EconPapers)
Date: 2010-05-01
New Economics Papers: this item is included in nep-ecm
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Citations: View citations in EconPapers (3)

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