Policy Learning under Endogeneity Using Instrumental Variables
Econometrics
2026-01-21 v4
Abstract
I propose a framework for learning individualized policy rules in observational data settings characterized by endogenous treatment selection and the availability of an instrumental variable. I introduce encouragement rules that manipulate the instrument. By incorporating the marginal treatment effect (MTE) as a policy invariant parameter, I establish the identification of the social welfare criterion for the optimal encouragement rule. Focusing on binary encouragement rules, I propose to estimate the optimal encouragement rule via the Empirical Welfare Maximization (EWM) method and derive the welfare loss convergence rate. I apply my method to advise on the optimal tuition subsidy assignment in Indonesia.
Cite
@article{arxiv.2206.09883,
title = {Policy Learning under Endogeneity Using Instrumental Variables},
author = {Yan Liu},
journal= {arXiv preprint arXiv:2206.09883},
year = {2026}
}