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The use of linear instrumental variables methods in health services research and health economics: a cautionary note.

Publication ,  Journal Article
Terza, JV; Bradford, WD; Dismuke, CE
Published in: Health Serv Res
June 2008

OBJECTIVE: To investigate potential bias in the use of the conventional linear instrumental variables (IV) method for the estimation of causal effects in inherently nonlinear regression settings. DATA SOURCES: Smoking Supplement to the 1979 National Health Interview Survey, National Longitudinal Alcohol Epidemiologic Survey, and simulated data. STUDY DESIGN: Potential bias from the use of the linear IV method in nonlinear models is assessed via simulation studies and real world data analyses in two commonly encountered regression setting: (1) models with a nonnegative outcome (e.g., a count) and a continuous endogenous regressor; and (2) models with a binary outcome and a binary endogenous regressor. PRINCIPAL FINDINGS: The simulation analyses show that substantial bias in the estimation of causal effects can result from applying the conventional IV method in inherently nonlinear regression settings. Moreover, the bias is not attenuated as the sample size increases. This point is further illustrated in the survey data analyses in which IV-based estimates of the relevant causal effects diverge substantially from those obtained with appropriate nonlinear estimation methods. CONCLUSIONS: We offer this research as a cautionary note to those who would opt for the use of linear specifications in inherently nonlinear settings involving endogeneity.

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Published In

Health Serv Res

DOI

ISSN

0017-9124

Publication Date

June 2008

Volume

43

Issue

3

Start / End Page

1102 / 1120

Location

United States

Related Subject Headings

  • United States
  • Models, Econometric
  • Linear Models
  • Health Services Research
  • Health Policy & Services
  • Economics, Medical
  • Bias
  • 4407 Policy and administration
  • 4203 Health services and systems
  • 1605 Policy and Administration
 

Citation

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Terza, J. V., Bradford, W. D., & Dismuke, C. E. (2008). The use of linear instrumental variables methods in health services research and health economics: a cautionary note. Health Serv Res, 43(3), 1102–1120. https://doi.org/10.1111/j.1475-6773.2007.00807.x
Terza, Joseph V., W David Bradford, and Clara E. Dismuke. “The use of linear instrumental variables methods in health services research and health economics: a cautionary note.Health Serv Res 43, no. 3 (June 2008): 1102–20. https://doi.org/10.1111/j.1475-6773.2007.00807.x.
Terza JV, Bradford WD, Dismuke CE. The use of linear instrumental variables methods in health services research and health economics: a cautionary note. Health Serv Res. 2008 Jun;43(3):1102–20.
Terza, Joseph V., et al. “The use of linear instrumental variables methods in health services research and health economics: a cautionary note.Health Serv Res, vol. 43, no. 3, June 2008, pp. 1102–20. Pubmed, doi:10.1111/j.1475-6773.2007.00807.x.
Terza JV, Bradford WD, Dismuke CE. The use of linear instrumental variables methods in health services research and health economics: a cautionary note. Health Serv Res. 2008 Jun;43(3):1102–1120.
Journal cover image

Published In

Health Serv Res

DOI

ISSN

0017-9124

Publication Date

June 2008

Volume

43

Issue

3

Start / End Page

1102 / 1120

Location

United States

Related Subject Headings

  • United States
  • Models, Econometric
  • Linear Models
  • Health Services Research
  • Health Policy & Services
  • Economics, Medical
  • Bias
  • 4407 Policy and administration
  • 4203 Health services and systems
  • 1605 Policy and Administration