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Just How Sensitive are Instrumental Variable Estimates?

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  • Reiss, Peter C.

Abstract

Researchers regularly use instrumental variables to resolve concerns about regressor endogeneity. The existing literature has correctly emphasized that the choice of instrumental variables matter for the resulting estimates. This paper shows that researchers should also be concerned that the functional form of the instrument matters as well for the resulting estimates. For example, simply changing an instrumental variable from the level to the logarithm can change estimates directly. This article documents the problem, suggests why the problem occurs and suggests different approaches to the problem.

Suggested Citation

  • Reiss, Peter C., 2016. "Just How Sensitive are Instrumental Variable Estimates?," Foundations and Trends(R) in Accounting, now publishers, vol. 10(2-4), pages 204-237, August.
    • Handle: RePEc:now:fntacc:1400000048
    DOI: 10.1561/1400000048
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    Cited by:

    1. Milovanska-Farrington, Stefani & Farrington, Stephen, 2021. "More and none? Children and parental well-being: A bimodal outcome from an instrumental variable approach," Research in Economics, Elsevier, vol. 75(3), pages 225-243.
    2. Pablo Mitnik, 2018. "Intergenerational Income Elasticities, Instrumental Variable Estimation, and Bracketing Strategies," Working Papers 2018-044, Human Capital and Economic Opportunity Working Group.
    3. Shakil, Golam Saroare & Marsh, Thomas L., 2021. "One Instrument to Rule Them All?," 2021 Annual Meeting, August 1-3, Austin, Texas 314047, Agricultural and Applied Economics Association.

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