7 Instrumental Variables (I)

Aside from experiments, all of the strategies covered up to this point rely on the researcher being able to control for confounding factors when estimating causal effects. For the next two weeks, we focus on a strategy – instrumental variables – which can be used to address unobserved confounding factors in the context of cross-sectional data (i.e. when we can’t use the panel data methods discussed in previous weeks). This week, we will motivate instrumental variable (IV) methods, by discussing how this strategy can be useful in the context of experimental data where some units fail to comply with the treatment.

This week, we focus on IV as a strategy for dealing with non-compliance (one-sided and two-sided) in randomized experiments. The clearest exposition of the idea of non-compliance is given in the two chapters of the Gerber and Green textbook (chapter 5 and chapter 6), although note that they generally avoid any mention of the phrase “instrumental variable” (I don’t really know why. Some of the linguistic decisions in that book are a little idiosyncratic.). The discussion of IV estimators is also very good (and short) in the Sovey and Green paper. This paper also emphasises the point that most applications in political science do not use IV for addressing non-compliance in randomized experiments (the case we discuss this week), but instead are applications where researchers use IV as a method for overcoming selection bias in cross-sectional observational studies (the case we will discuss next week). The “reader’s checklist” they provide at the end of the paper is particularly recommended, as it gives good, straightforward advice to anyone thinking about using IV as an estimation strategy for causal effects.

The chapter on IV estimation in MHE is good, though much of the material is beyond the level you (or anyone else, to be honest) will need to implement a good IV design. The treatment in the Mastering ’Metrics book is somewhat easier, and also includes some very interesting applications of IV when used to address non-compliance.

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