Understanding Instrumental Variables in Models with Essential Heterogeneity

James Heckman, Sergio Urzua and Edward Vytlacil

No 12574, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper examines the properties of instrumental variables (IV) applied to models with essential heterogeneity, that is, models where responses to interventions are heterogeneous and agents adopt treatments (participate in programs) with at least partial knowledge of their idiosyncratic response. We analyze two-outcome and multiple-outcome models including ordered and unordered choice models. We allow for transition-specific and general instruments. We generalize previous analyses by developing weights for treatment effects for general instruments. We develop a simple test for the presence of essential heterogeneity. We note the asymmetry of the model of essential heterogeneity: outcomes of choices are heterogeneous in a general way; choices are not. When both choices and outcomes are permitted to be symmetrically heterogeneous, the method of IV breaks down for estimating treatment parameters.

JEL-codes: C31 (search for similar items in EconPapers)
Date: 2006-10
New Economics Papers: this item is included in nep-dcm
Note: DAE LS PE POL
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Citations: View citations in EconPapers (571)

Published as Heckman, James J., Sergio Urzua and Edward Vytlacil. "Understanding Instrumental Variables In Models With Essential Heterogeneity," Review of Economics and Statistics, 2006, v88(3,Aug), 389-432.

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Related works:
Working Paper: Understanding Instrumental Variables in Models with Essential Heterogeneity (2009)
Journal Article: Understanding Instrumental Variables in Models with Essential Heterogeneity (2006)
Working Paper: Understanding Instrumental Variables in Models with Essential Heterogeneity (2006)
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