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Negative Control Falsification Tests for Instrumental Variable Designs

Oren Danieli¹; Daniel Nevo¹; Itai Walk¹; Bar Weinstein¹; Dan Zeltzer²

¹ Tel Aviv University (email: ) · ² Tel Aviv University and University of California, Berkeley (email: )

The validity of instrumental variable (IV) designs is typically tested using two types of falsification tests. We characterize these tests as conditional independence tests between negative control variables—proxies for unobserved variables posing a threat to the identification—and the IV or the outcome. We describe the conditions variables must satisfy in order to serve as negative controls. We show these falsification tests examine not only independence and the exclusion restriction but also functional form assumptions. Our analysis reveals conventional applications of these tests may flag problems even in valid IV designs. We offer implementation guidance to address these issues. (JEL C12, C18, C26, C52)

DOI

10.1257/aer.20240636

Volume

116 (4)

Pages

1380-1414

Language

en

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