Negative Control Falsification Tests for Instrumental Variable Designs

Oren Danieli, Daniel Nevo, Itai Walk, Bar Weinstein and Dan Zeltzer

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Abstract: The validity of instrumental variable (IV) designs is typically tested using two types of falsification tests. We characterize these tests as conditional independence tests between negative control variables -- proxies for unobserved variables posing a threat to the identification -- and the IV or the outcome. We describe the conditions that variables must satisfy in order to serve as negative controls. We show that these falsification tests examine not only independence and the exclusion restriction, but also functional form assumptions. Our analysis reveals that conventional applications of these tests may flag problems even in valid IV designs. We offer implementation guidance to address these issues.

Date: 2023-12, Revised 2025-04
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http://arxiv.org/pdf/2312.15624 Latest version (application/pdf)

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Working Paper: Negative Control Falsification Tests for Instrumental Variable Designs (2024)
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