Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/58484
Authors: 
Belzil, Christian
Hansen, Jörgen
Year of Publication: 
2012
Series/Report no.: 
Discussion Paper series, Forschungsinstitut zur Zukunft der Arbeit 6339
Abstract: 
We build on Rosenzweig and Wolpin (2000) and Keane (2010) and show that in order to fulfill the Instrumental variable (IV) identifying moment condition, a policy must be designed so that compliers and non-compliers either have the same average error term, or have an error term ratio equal to their relative share of the population. The former condition (labeled Choice Orthogonality) is essentially a no-selection condition. The latter one, referred to as Weighted Opposite Choices, may be viewed as a distributional (functional form) assumption necessary to match the degree of selectivity between compliers and noncompliers to their relative population proportions. Those conditions form a core of implicit IV assumptions that are present in any empirical applications. They allow the econometrician to gain substantial insight about the validity of a specific instrument, and they illustrate the link between identification and the statistical strength of an instrument. Finally, our characterization may also help designing a policy generating a valid instrument.
Subjects: 
instrumental variable methods
implicit assumptions
treatment effects
JEL: 
B4
C1
C3
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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