Instrumental Variables for Binary Treatments with Heterogeneous Treatment Effects: A Simple Exposition

Alan Manning

CEP Discussion Papers from Centre for Economic Performance, LSE

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

Keywords: Instrumental Variables; treatment effects; identification (search for similar items in EconPapers)
JEL-codes: C2 (search for similar items in EconPapers)
Date: 2004-02
New Economics Papers: this item is included in nep-ecm and nep-hea
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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