Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/324414 
Year of Publication: 
2025
Series/Report no.: 
cemmap working paper No. CWP09/25
Publisher: 
Centre for Microdata Methods and Practice (cemmap), The Institute for Fiscal Studies (IFS), London
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.
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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