Optimal formula instruments

Kirill Borusyak and Peter Hull

No 09/25, CeMMAP working papers from Institute for Fiscal Studies

Abstract: When estimating the effects of treatments defined by complex formulas, researchers often use simple functions of exogenous shocks as instruments. A leading example is “simulated instruments†for public policy eligibility, which capture variation in state-level policy generosity. We show how more powerful instruments can be constructed by incorporating heterogeneous shock exposure while using a recentering procedure to avoid bias. We characterize the asymptotically efficient instruments in this class and propose an algorithm for constructing feasible approximations to them. Compared to a simulated instrument approach, our approach yields a 44% smaller standard error on the private insurance crowd-out effect of Medicaid enrollment from the 2014 Affordable Care Act expansions.

Date: 2025-03-28
References: Add references at CitEc
Citations:

Downloads: (external link)
https://cemmap.ac.uk/wp-content/uploads/2025/03/CW ... mula-instruments.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:azt:cemmap:09/25

DOI: 10.47004/wp.cem.2025.0925

Access Statistics for this paper

More papers in CeMMAP working papers from Institute for Fiscal Studies Contact information at EDIRC.
Bibliographic data for series maintained by Dermot Watson ().