Policy Evaluation with Instrumental Variables

Instrumental Variables (IV) estimation for policy evaluation is a quasi-experimental technique that uses an exogenous instrument — a variable that shifts exposure to a policy but is otherwise unrelated to the outcome — to recover the causal effect of a program or intervention from non-experimental data. Popularised in policy research by Angrist, Imbens, and Rubin (1996), it identifies the Local Average Treatment Effect (LATE) among units whose treatment status is changed by the instrument.