Instrumental Variables Estimation of Average Treatment Effects in Econometrics and Epidemiology

37 Pages Posted: 25 Aug 2000 Last revised: 27 Apr 2023

See all articles by Joshua D. Angrist

Joshua D. Angrist

Massachusetts Institute of Technology (MIT) - Department of Economics; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics

Date Written: November 1991

Abstract

The average effect of intervention or treatment is a parameter of interest in both epidemiology and econometrics. A key difference between applications in the two fields is that epidemiologic research is more likely to involve qualitative outcomes and nonlinear models. An example is the recent use of the Vietnam era draft lottery to construct estimates of the effect of Vietnam era military service on civilian mortality. In this paper. I present necessary and sufficient conditions for linear instrumental variables. techniques to consistently estimate average treatment effects in qualitative or other nonlinear models. Most latent index models commonly applied to qualitative outcomes in econometrics fail to satisfy these conditions, and monte carlo evidence on the bias of instrumental estimates of the average treatment effect in a bivariate probit model is presented. The evidence suggests that linear instrumental variables estimators perform nearly as well as the correctly specified maximum likelihood estimator. especially in large samples. Linear instrumental variables and the normal maximum likelihood estimator are also remarkably robust to non-normality.

Suggested Citation

Angrist, Joshua, Instrumental Variables Estimation of Average Treatment Effects in Econometrics and Epidemiology (November 1991). NBER Working Paper No. t0115, Available at SSRN: https://ssrn.com/abstract=240090

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