Instrumental Variable Estimatio

7 important questions on Instrumental Variable Estimatio

For what is IV estimation useful?

IV estimation can allow estimating treatment effects if conditional independence assuptions fails.

What does IV regression do?

It breaks Di into two parts:
- a part that might be correlated with nu_i
- a part that is not correlated with nu_i
By isolating the part that is not correlated with nu_i, it is possible to estimate delta.

What detects the IV?

Movements in Di that are uncorrelated with nu_i.
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What are the conditions for a valid instrument?

1. Instrument relevance.
2. Instrument exogeneity.

What are the assumptions for heterogeneous treatment effects?

- Exclusion: instrument no direct effect on potential outcome.
- First-stage.
- Independence: instrument unrelated with all potential outcomes and potential treatment assignments.
- Monotonicity.

What does IV estimation measure?

Local Average Treatment Effect.

Which complienace types are plausible in Balsakhi example with intention to treat as IV?

- Never-takers
- Compliers

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