Instrumental Variable Estimators of Causal Effects

Abstract

If a perfect stratification of the data cannot be achieved with available data, and thus neither matching nor regression nor any other type of basic conditioning technique can be used to effectively estimate a causal effect of D on Y, one solution is to find an exogenous source of variation that affects Y only by way of the causal variable D. The causal effect is then estimated by measuring how Y varies with the portion of the total variation in D that is attributable to the exogenous variation. The variable that indexes the portion of the total variation in D that is used to estimate the causal effect is an instrumental variable.