Identification with Possibly Invalid IVs

38 Pages Posted: 1 Feb 2024

Date Written: January 8, 2024

Abstract

This paper proposes a novel identification strategy relying on quasi-instrumental variables (quasi-IVs). A quasi-IV is a relevant but possibly invalid IV because it is not completely exogenous and/or excluded. We show that a variety of models with discrete or continuous endogenous treatment, which are usually identified with an IV - quantile models with rank invariance additive models with homogenous treatment effects, and local average treatment effect models - can be identified under the joint relevance of two complementary quasi-IVs instead. To achieve identification we complement one excluded but possibly endogenous quasi-IV (e.g., ``relevant proxies'' such as previous treatment choice) with one exogenous (conditional on the excluded quasi-IV) but possibly included quasi-IV (e.g., random assignment or exogenous market shocks). In practice, our identification strategy should be attractive since complementary quasi-IVs should be easier to find than standard IVs. Our approach also holds if any of the two quasi-IVs turns out to be a valid IV.

Keywords: instrumental variables, identification, non-separable models, selection models, treatment effects, exclusion restriction

Suggested Citation

Bruneel-Zupanc, Christophe and Beyhum, Jad, Identification with Possibly Invalid IVs (January 8, 2024). Available at SSRN: https://ssrn.com/abstract=4687430 or http://dx.doi.org/10.2139/ssrn.4687430

Christophe Bruneel-Zupanc

KU Leuven ( email )

Korte Nieuwstraat 33
2000 Antwerpen
Belgium

HOME PAGE: http://https://www.cbruneel.com/

Jad Beyhum (Contact Author)

KU Leuven - Department of Economics ( email )

Leuven
Belgium

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