Instrumental Variables: An Econometrician's Perspective

TL;DR

This paper reviews recent statistical developments in instrumental variables methods from an econometric perspective, connecting classical economic applications with modern experimental settings involving noncompliance.

Contribution

It provides a comprehensive overview of instrumental variables assumptions, their plausibility, and their application in both traditional economic models and recent experimental contexts.

Findings

Clarifies assumptions underlying IV methods

Links economic models to experimental applications

Highlights conditions for IV validity

Abstract

I review recent work in the statistics literature on instrumental variables methods from an econometrics perspective. I discuss some of the older, economic, applications including supply and demand models and relate them to the recent applications in settings of randomized experiments with noncompliance. I discuss the assumptions underlying instrumental variables methods and in what settings these may be plausible. By providing context to the current applications, a better understanding of the applicability of these methods may arise.