Scandinavian Working Papers in Economics

Discussion Papers of Business and Economics,
University of Southern Denmark, Department of Business and Economics

No 4/2015: A Note on Testing the LATE Assumptions

Lukas Laffers () and Giovanni Mellace ()
Additional contact information
Lukas Laffers: Department of Mathematics, Postal: Matej Bel University, Slovakia
Giovanni Mellace: Department of Business and Economics, Postal: University of Southern Denmark, Campusvej 55, DK-5230 Odense M, Denmark

Abstract: In this paper we show that the testable implications derived in Huber and Mellace (2013) are the best possible to detect invalid instruments, in the presence of heterogeneous treatment effects and endogeneity. We also provide a formal proof of the fact that those testable implications are only necessary but not sufficient conditions for instrument validity.

Keywords: Testing IV validity; Local average treatment effect; Moment inequalities; Bounds

JEL-codes: C12; C21; C26

6 pages, March 3, 2015

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