Applications
IV methods are commonly used to estimate causal effects in contexts in which controlled experiments are not available. Credibility of the estimates hinges on the selection of suitable instruments. Good instruments are often created by policy changes, for example, the cancellation of federal student aid scholarship program may reveal the effects of aid on some students' outcomes. Other natural and quasi-natural experiments of various types are commonly exploited, for example, Miguel, Satyanath, and Sergenti (2004) use weather shocks to identify the effect of changes in economic growth (i.e., declines) on civil conflict. Angrist and Krueger (2001) presents a survey of the history and uses of instrumental variable techniques.
Read more about this topic: Instrumental Variable