Generalized Instrumental Variable Models

Speaker(s): 
Adam Rosen (UCL)
Date: 
Monday, April 28, 2014 - 2:00pm
Location: 
Spandauer Straße 1, Room 23

The ability to allow for exible forms of unobserved heterogeneity is an essential ingredient in modern microeconometrics. In this paper we extend the application of instrumental variable (IV) methods to a wide class of problems in which multiple values of unobservable variables can be associated with particular combinations of observed endogenous and exogenous variables. In our Generalized Instrumental Variable (GIV) models, in contrast to traditional IV models, the mapping from unobserved heterogeneity to endogenous variables need not admit a unique inverse. The class of GIV models allows unobservables to be multivariate and to enter non-separably into the determination of endogenous variables, thereby removing strong practical limitations on the role of unobserved heterogeneity. Important examples include models with discrete or mixed continuous/discrete outcomes and continuous unobservables, and models with excess heterogeneity where many combinations of dierent values of multiple unobserved variables, such as random coecients, can deliver the same realizations of outcomes. We use tools from random set theory to study identication in such models and provide a sharp characterization of the identied set of structures admitted. We demonstrate the application of our analysis to a continuous outcome model with an interval-censored endogenous explanatory variable.