Comparing IV With Structural Models: What Simple IV Can and Cannot Identify

J. Heckman and Sergio Urzua , Journal of Econometrics 156(1) , 27-37 , May 2010.

This paper compares the economic questions addressed by instrumental variables estimators with those addressed by structural approaches. We discuss Marschak’s Maxim: estimators should be selected on the basis of their ability to answer well-posed economic problems with minimal assumptions. A key identifying assumption that allows structural methods to be more informative than IV can be tested with data and does not have to be imposed.

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