January 2009

IZA DP No. 3980: Comparing IV with Structural Models: What Simple IV Can and Cannot Identify

published in: Journal of Econometrics, 2010, 156 (1), 27-37

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.