Econometrica: Sep, 2015, Volume 83, Issue 5

A Test for Instrument Validity

https://doi.org/10.3982/ECTA11974
p. 2043-2063

Toru Kitagawa

This paper develops a specification test for instrument validity in the heterogeneous treatment effect model with a binary treatment and a discrete instrument. The strongest testable implication for instrument validity is given by the condition for nonnegativity of point‐identifiable compliers' outcome densities. Our specification test infers this testable implication using a variance‐weighted Kolmogorov–Smirnov test statistic. The test can be applied to both discrete and continuous outcome cases, and an extension of the test to settings with conditioning covariates is provided.

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