Estimating and Interpreting Models with Endogenous Treatment Effects

The relationship between two alternative approaches, instrumental variables and control function procedures, for estimating the impact of endogenous treatment effects are examined. Although it is well known that the two approaches generate comparable estimates, the relationship between the estimators and their accompanying endogeneity tests appears not to be well understood. It is shown that the two procedures are closely related. The implications of the two procedures for the underlying economic sorting behavior are also examined.