IDEAS home Printed from https://ideas.repec.org/a/wly/hlthec/v23y2014i4p462-472.html
   My bibliography  Save this article

Can We Make Smart Choices Between Ols And Contaminated Iv Methods?

Author

Listed:
  • Anirban Basu
  • Kwun Chuen Gary Chan

Abstract

In the outcomes research and comparative effectiveness research literature, there are strong cautionary tales on the use of instrumental variables (IVs) that may influence the newly initiated to shun this premier tool for casual inference without properly weighing their advantages. It has been recommended that IV methods should be avoided if the instrument is not econometrically perfect. The fact that IVs can produce better results than naïve regression, even in nonideal circumstances, remains underappreciated. In this paper, we propose a diagnostic criterion and related software that can be used by an applied researcher to determine the plausible superiority of IV over an ordinary least squares (OLS) estimator, which does not address the endogeneity of a covariate in question. Given a reasonable lower bound for the bias arising out of an OLS estimator, the researcher can use our proposed diagnostic tool to confirm whether the IV at hand can produce a better estimate (i.e., with lower mean square error) of the true effect parameter than the OLS, without knowing the true level of contamination in the IV. Copyright © 2013 John Wiley & Sons, Ltd.

Suggested Citation

  • Anirban Basu & Kwun Chuen Gary Chan, 2014. "Can We Make Smart Choices Between Ols And Contaminated Iv Methods?," Health Economics, John Wiley & Sons, Ltd., vol. 23(4), pages 462-472, April.
    • Handle: RePEc:wly:hlthec:v:23:y:2014:i:4:p:462-472
    DOI: 10.1002/hec.2926
    as

    Download full text from publisher

    File URL: https://doi.org/10.1002/hec.2926
    Download Restriction: no
    File URL: https://libkey.io/10.1002/hec.2926?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Joseph G. Altonji & Todd E. Elder & Christopher R. Taber, 2005. "Selection on Observed and Unobserved Variables: Assessing the Effectiveness of Catholic Schools," Journal of Political Economy, University of Chicago Press, vol. 113(1), pages 151-184, February.
    2. Terza, Joseph V. & Basu, Anirban & Rathouz, Paul J., 2008. "Two-stage residual inclusion estimation: Addressing endogeneity in health econometric modeling," Journal of Health Economics, Elsevier, vol. 27(3), pages 531-543, May.
    3. James H. Stock & Francesco Trebbi, 2003. "Retrospectives: Who Invented Instrumental Variable Regression?," Journal of Economic Perspectives, American Economic Association, vol. 17(3), pages 177-194, Summer.
    4. Brookhart M. Alan & Schneeweiss Sebastian, 2007. "Preference-Based Instrumental Variable Methods for the Estimation of Treatment Effects: Assessing Validity and Interpreting Results," The International Journal of Biostatistics, De Gruyter, vol. 3(1), pages 1-25, December.
    5. Thomas B. Newman & Eric Vittinghoff & Charles E. McCulloch, 2012. "Efficacy of Phototherapy for Newborns with Hyperbilirubinemia," Medical Decision Making, , vol. 32(1), pages 83-92, January.
    6. Michael P. Murray, 2006. "Avoiding Invalid Instruments and Coping with Weak Instruments," Journal of Economic Perspectives, American Economic Association, vol. 20(4), pages 111-132, Fall.
    7. Douglas Staiger & James H. Stock, 1997. "Instrumental Variables Regression with Weak Instruments," Econometrica, Econometric Society, vol. 65(3), pages 557-586, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Souvik Banerjee & Anirban Basu, 2021. "Estimating Endogenous Treatment Effects Using Latent Factor Models with and without Instrumental Variables," Econometrics, MDPI, vol. 9(1), pages 1-25, March.
    2. Rapp, Thomas & Chauvin, Pauline & Sirven, Nicolas, 2015. "Are public subsidies effective to reduce emergency care? Evidence from the PLASA study," Social Science & Medicine, Elsevier, vol. 138(C), pages 31-37.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Doko Tchatoka, Firmin Sabro, 2012. "Specification Tests with Weak and Invalid Instruments," MPRA Paper 40185, University Library of Munich, Germany.
    2. Manuel Denzer, 2019. "Estimating Causal Effects in Binary Response Models with Binary Endogenous Explanatory Variables - A Comparison of Possible Estimators," Working Papers 1916, Gutenberg School of Management and Economics, Johannes Gutenberg-Universität Mainz.
    3. Amir Karimi & Anant Mishra & Karthik V. Natarajan & Kingshuk K. Sinha, 2021. "Managing Commodity Stock‐outs in Public Health Supply Chains in Developing Countries: An Empirical Analysis," Production and Operations Management, Production and Operations Management Society, vol. 30(9), pages 3116-3142, September.
    4. Ryan Edwards, 2015. "Is plantation agriculture good for the poor? Evidence from Indonesia's palm oil expansion," Departmental Working Papers 2015-12, The Australian National University, Arndt-Corden Department of Economics.
    5. Arne Henningsen & Guy Low & David Wuepper & Tobias Dalhaus & Hugo Storm & Dagim Belay & Stefan Hirsch, 2024. "Estimating Causal Effects with Observational Data: Guidelines for Agricultural and Applied Economists," IFRO Working Paper 2024/03, University of Copenhagen, Department of Food and Resource Economics.
    6. Norma B. Coe & Jing Guo & R. Tamara Konetzka & Courtney Harold Van Houtven, 2019. "What is the marginal benefit of payment‐induced family care? Impact on Medicaid spending and health of care recipients," Health Economics, John Wiley & Sons, Ltd., vol. 28(5), pages 678-692, May.
    7. Jaeun Choi & A. James O'Malley, 2017. "Estimating the causal effect of treatment in observational studies with survival time end points and unmeasured confounding," Journal of the Royal Statistical Society Series C, Royal Statistical Society, vol. 66(1), pages 159-185, January.
    8. Claire Dujardin & Florence Goffette-Nagot, 2009. "Does public housing occupancy increase unemployment?," Journal of Economic Geography, Oxford University Press, vol. 9(6), pages 823-851, November.
    9. David Figlio & Jens Ludwig, 2012. "Sex, Drugs, and Catholic Schools: Private Schooling and Non-Market Adolescent Behaviors," German Economic Review, Verein für Socialpolitik, vol. 13(4), pages 385-415, November.
    10. Vance, Colin & Frondel, Manuel, 2015. "From fuel taxation to efficiency standards: A wrong turn in European climate protection?," VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 113171, Verein für Socialpolitik / German Economic Association.
    11. Burlinson, Andrew & Giulietti, Monica & Law, Cherry & Liu, Hui-Hsuan, 2021. "Fuel poverty and financial distress," Energy Economics, Elsevier, vol. 102(C).
    12. Lauber, Verena & Thomas, Lampert, 2014. "The Effect of Early Universal Daycare on Child Weight Problems," VfS Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100399, Verein für Socialpolitik / German Economic Association.
    13. Gregory, Christian & Deb, Partha, 2016. "Who Benefits Most from SNAP?," 2016 Annual Meeting, July 31-August 2, Boston, Massachusetts 236648, Agricultural and Applied Economics Association.
    14. Subha Mani, 2012. "Is there Complete, Partial, or No Recovery from Childhood Malnutrition? – Empirical Evidence from Indonesia," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 74(5), pages 691-715, October.
    15. Guilhem Bascle, 2008. "Controlling for endogeneity with instrumental variables in strategic management research," Post-Print hal-00576795, HAL.
    16. Tito Belchior Silva Moreira & Benjamin Miranda Tabak & Mario Jorge Mendonça & Adolfo Sachsida, 2016. "An Evaluation of the Non-Neutrality of Money," PLOS ONE, Public Library of Science, vol. 11(3), pages 1-20, March.
    17. Heissel, Jennifer, 2016. "The relative benefits of live versus online delivery: Evidence from virtual algebra I in North Carolina," Economics of Education Review, Elsevier, vol. 53(C), pages 99-115.
    18. Dusanee Kesavayuth & Robert E. Rosenman & Vasileios Zikos, 2016. "Retirement, Personality, And Well-Being," Economic Inquiry, Western Economic Association International, vol. 54(2), pages 733-750, April.
    19. Cinthya Caamal Olvera., 2007. "Oferta Laboral en México: un enfoque de variables instrumentales," Ensayos Revista de Economia, Universidad Autonoma de Nuevo Leon, Facultad de Economia, vol. 0(1), pages 115-154, May.
    20. Sisira Sarma & Rose Anne Devlin & Jason Gilliland & M. Karen Campbell & Gregory S. Zaric, 2015. "The Effect of Leisure‐Time Physical Activity on Obesity, Diabetes, High BP and Heart Disease Among Canadians: Evidence from 2000/2001 to 2005/2006," Health Economics, John Wiley & Sons, Ltd., vol. 24(12), pages 1531-1547, December.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wly:hlthec:v:23:y:2014:i:4:p:462-472. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www3.interscience.wiley.com/cgi-bin/jhome/5749 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.