Policy Learning under Endogeneity Using Instrumental Variables

Yan Liu

Papers from arXiv.org

Abstract: I propose a framework for learning individualized policy rules in observational data settings characterized by endogenous treatment selection and the availability of an instrumental variable. I introduce encouragement rules that manipulate the instrument. By incorporating the marginal treatment effect (MTE) as a policy invariant parameter, I establish the identification of the social welfare criterion for the optimal encouragement rule. Focusing on binary encouragement rules, I propose to estimate the optimal encouragement rule via the Empirical Welfare Maximization (EWM) method and derive the welfare loss convergence rate. I apply my method to advise on the optimal tuition subsidy assignment in Indonesia.

Date: 2022-06, Revised 2026-01
New Economics Papers: this item is included in nep-ecm and nep-sea
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