TY  - JOUR
AU  - Angrist,Joshua
AU  - Krueger,Alan B.
TI  - Instrumental Variables and the Search for Identification: From Supply and Demand to Natural Experiments
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 8456
PY  - 2001
Y2  - September 2001
UR  - http://www.nber.org/papers/w8456
L1  - http://www.nber.org/papers/w8456.pdf
N1  - Author contact info:
Joshua Angrist
Department of Economics
MIT, E52-353
50 Memorial Drive
Cambridge, MA  02142-1347
Tel: 617/253-8909
Fax: 617/253-1330
E-Mail: angrist@mit.edu

Alan B. Krueger
Industrial Relations Section
Firestone Library
Princeton University
Princeton, NJ 08544
Tel: 609/258-4046
Fax: 609/258-2907
E-Mail: akrueger@princeton.edu
AB  - The method of instrumental variables was first used in the 1920s to estimate supply and demand elasticities, and later used to correct for measurement error in single-equation models. Recently, instrumental variables have been widely used to reduce bias from omitted variables in estimates of causal relationships such as the effect of schooling on earnings. Intuitively, instrumental variables methods use only a portion of the variability in key variables to estimate the relationships of interest; if the instruments are valid, that portion is unrelated to the omitted variables. We discuss the mechanics of instrumental variables, and the qualities that make for a good instrument, devoting particular attention to instruments that are derived from 'natural experiments.' A key feature of the natural experiments approach is the transparency and refutability of identifying assumptions. We also discuss the use of instrumental variables in randomized experiments.
ER  -