Pairwise valid instruments

Zhenting Sun

doi:10.1016/j.jeconom.2025.106009

Return

Pairwise valid instruments

2025-05-07

Zhenting Sun

Kaspar Wüthrich

DOI：10.1016/j.jeconom.2025.106009

Original

Original request for help

Save

Abstract

En 中文

Finding valid instruments is difficult. We propose Validity Set Instrumental Variable (VSIV) estimation, a method for estimating local average treatment effects (LATEs) in heterogeneous causal effect models when the instruments are partially invalid. We consider settings with pairwise valid instruments, that is, instruments that are valid for a subset of instrument value pairs. VSIV estimation exploits testable implications of instrument validity to remove invalid pairs and provides estimates of the LATEs for all remaining pairs, which can be aggregated into a single parameter of interest using researcher-specified weights. We show that the proposed VSIV estimators are asymptotically normal under weak conditions and remove or reduce the asymptotic bias relative to standard LATE estimators (that is, LATE estimators that do not use testable implications to remove invalid variation). We evaluate the finite sample properties of VSIV estimation in application-based simulations and apply our method to estimate the returns to college education using parental education as an instrument.

Keywords:

Invalid instruments

Local average treatment effects

Identification

Instrumental variable estimation

Asymptotic bias reduction