The Economics of Exclusion Restrictions in IV Models

Damon Jones

No 21391, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We explore a key underlying assumption, the exclusion restriction, commonly used in interpreting IV estimates in the presence of heterogenous treatment effects as a local average treatment effect (LATE). We show through a series of simple examples that in some commonly featured cases that this assumption is likely to be violated among inframarginal agents, i.e. the always- and never-takers. This violation of the exclusion restriction will generally confound the LATE interpretation of the associated IV results. We discuss potential adjustments to IV estimates in the presence of this bias.

JEL-codes: C1 C26 C36 (search for similar items in EconPapers)
Date: 2015-07
New Economics Papers: this item is included in nep-ecm
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Citations: View citations in EconPapers (16)

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