Structural econometric methods are often criticized for being sensitive to functional form assumptions. We study parametric estimators of the local average treatment effect (LATE) derived from a widely used class of latent threshold crossing models and show they yield LATE estimates algebraically equivalent to the instrumental variables (IV) estimator. Our leading example is Heckman's (1979) two‐step (“Heckit”) control function estimator which, with two‐sided non‐compliance, can be used to compute estimates of a variety of causal parameters. Equivalence with IV is established for a semiparametric family of control function estimators and shown to hold at interior solutions for a class of maximum likelihood estimators. Our results suggest differences between structural and IV estimates often stem from disagreements about the target parameter rather than from functional form assumptions per se. In cases where equivalence fails, reporting structural estimates of LATE alongside IV provides a simple means of assessing the credibility of structural extrapolation exercises.

This article analyzes how patent-induced shocks to labor productivity propagate into worker compensation using a new linkage of U.S. patent applications to U.S. business and worker tax records. We infer the causal effects of patent allowances by comparing firms whose patent applications were initially allowed to those whose patent applications were initially rejected. To identify patents that are ex ante valuable, we extrapolate the excess stock return estimates of Kogan et al. (2017) to the full set of accepted and rejected patent applications based on predetermined firm and patent application characteristics. An initial allowance of an ex ante valuable patent generates substantial increases in firm productivity and worker compensation. By contrast, initial allowances of lower ex ante value patents yield no detectable effects on firm outcomes. Patent allowances lead firms to increase employment, but entry wages and workforce composition are insensitive to patent decisions. On average, workers capture roughly 30 cents of every dollar of patent-induced surplus in higher earnings. This share is roughly twice as high among workers present since the year of application. These earnings effects are concentrated among men and workers in the top half of the earnings distribution and are paired with corresponding improvements in worker retention among these groups. We interpret these earnings responses as reflecting the capture of economic rents by senior workers, who are most costly for innovative firms to replace.