TY  - JOUR
AU  - Heckman,James J.
AU  - Urzua,Sergio
AU  - Vytlacil,Edward J.
TI  - Understanding Instrumental Variables in Models with Essential Heterogeneity
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 12574
PY  - 2006
Y2  - October 2006
UR  - http://www.nber.org/papers/w12574
L1  - http://www.nber.org/papers/w12574.pdf
N1  - Author contact info:
James J. Heckman
Department of Economics
The University of Chicago
1126 E. 59th Street
Chicago, IL 60637
Tel: 773/702-0634
Fax: 773/702-8490
E-Mail: jheckman@uchicago.edu

Sergio Urzua
1401 East Hyde Park Blvd. #901
Chicago, IL, 60615
E-Mail: surzua@uchicago.edu

Edward J. Vytlacil
Department of Economics
Yale University
Box 208281
New Haven, CT 06520-8281
Tel: 203-432-3244
Fax: (203) 432-6167
E-Mail: edward.vytlacil@yale.edu
M1  - published as Heckman, James J., Sergio Urzua and Edward Vytlacil. "Understanding Instrumental Variables In Models With Essential Heterogeneity," Review of Economics and Statistics, 2006, v88(3,Aug), 389-432.
AB  - This paper examines the properties of instrumental variables (IV) applied to models with essential heterogeneity, that is, models where responses to interventions are heterogeneous and agents adopt treatments (participate in programs) with at least partial knowledge of their idiosyncratic response. We analyze two-outcome and multiple-outcome models including ordered and unordered choice models. We allow for transition-specific and general instruments. We generalize previous analyses by developing weights for treatment effects for general instruments. We develop a simple test for the presence of essential heterogeneity. We note the asymmetry of the model of essential heterogeneity: outcomes of choices are heterogeneous in a general way; choices are not. When both choices and outcomes are permitted to be symmetrically heterogeneous, the method of IV breaks down for estimating treatment parameters.
ER  -