That instrument is lousy! In search of agreement when using instrumental variables estimation in substance use research

Abstract

The primary statistical challenge that must be addressed when using cross-sectional data to estimate the consequences of consuming addictive substances is the likely endogeneity of substance use. While economists are in agreement on the need to consider potential endogeneity bias and the value of instrumental variables estimation, the selection of credible instruments is a topic of heated debate in the field. Rather than attempt to resolve this debate, our paper highlights the diversity of judgments about what constitutes appropriate instruments for substance use based on a comprehensive review of the economics literature since 1990. We then offer recommendations related to the selection of reliable instruments in future studies. Copyright © 2009 John Wiley & Sons, Ltd.