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Author: Kedagni, Desire
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1. Kedagni, Desire
Testing Instrument Validity and Identification with Invalid Instruments
Ph.D. Dissertation, Department of Economics, The Pennsylvania State University, 2018
Cohort(s): Young Men
Publisher: ProQuest Dissertations & Theses (PQDT)
Keyword(s): College Education; Educational Returns; Modeling, Instrumental Variables

Permission to reprint the abstract has not been received from the publisher.

In the second chapter, I consider identification of treatment effects when the treatment is endogenous. The use of instrumental variables is a popular solution to deal with endogeneity, but this may give misleading answers when the instrument is invalid. I show that when the instrument is invalid due to correlation with the first stage unobserved heterogeneity, a second (also possibly invalid) instrument allows to partially identify not only the local average treatment effect, but also the entire potential outcomes distributions for compliers. I exploit the fact that the distribution of the observed outcome in each group defined by the treatment and the instrument is a mixture of the distributions of interest. I write the identified set in the form of conditional moment inequalities, and provide an easily implementable inference procedure. Under some (testable) tail restrictions, the potential outcomes distributions are point-identified for compliers. Finally, I illustrate my methodology on data from the National Longitudinal Survey of Young Men to estimate returns to college using college proximity as (potential) instrument. I find that a 95% level confidence set for the average return to college for compliers is [38%, 79%].
Bibliography Citation
Kedagni, Desire. Testing Instrument Validity and Identification with Invalid Instruments. Ph.D. Dissertation, Department of Economics, The Pennsylvania State University, 2018.