Testing instrument validity for LATE identification based on inequality moment constraints

Journal
Review of Economics & Statistics
ISSN
0034-6535
ISSN-Digital
1530-9142
Type
journal article
Date Issued
2015-05
Author(s)
;
Mellace, Giovanni
DOI
Abstract
This paper proposes bootstrap tests for the validity of instrumental variables (IV) in just identified treatment effect models with endogeneity. We demonstrate that the IV assumptions required for the identification of the local average treatment effect (LATE) allow us to both point identify and bound the mean potential outcomes (i) of the always takers (those treated irrespective of the instrument) under treatment and (ii) of the never takers (never treated irrespective of the instrument) under non-treatment. The point identified means must lie within their respective bounds, which provides four testable inequality moment constraints for IV validity. Furthermore, we present simulations on the finite sample behavior of various tests and empirical applications to labor market and economic development data. Finally, we show how to increase testing power by imposing mean dominance assumptions and propose a method to check for effect homogeneity across subpopulations
Language
English
Keywords
specification test
instrument
treatment effects
LATE
inequality moment constraints.
HSG Classification
contribution to scientific community
Refereed
Yes
Publisher
MIT Press
Publisher place
Cambridge, MA
Volume
97
Number
2
Start page
398
End page
411
URL
Subject(s)

economics

Division(s)

SEW - Swiss Institute...

Eprints ID
117457
File(s)
Thumbnail Image

open.access

Name

Huber Mellace Testing instrument validity for LATE identification based on inequality moment constraints.pdf

Size

553.62 KB

Format

Adobe PDF

Checksum (MD5)

84b425ab06e76de1dae0857ab4629fc2

Thumbnail Image

open.access

Name

IVtestHuberMellace - PUBLIC USE R CODE.R

Size

9.95 KB

Format

Unknown

Checksum (MD5)

5b9154ef4763bbcf1097b8c178ee170a