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What's the Magic Formula Instrument?

Peizan Sheng, Alexander Torgovitsky

arXiv 19 Jun 2026 · Econometrics

arXiv:2606.21569 · PDF · DOI · OpenAlex · Extracted main text

Abstract

Two recent papers by Borusyak and Hull (2023, 2026) propose using known formulas to adjust linear instrumental variable estimators for confounding covariates. Implementing this "formula instrument" approach requires making a parametric assumption on the distribution of the unobserved shocks that generated the instrument. We develop a method for systematically evaluating the sensitivity of formula instrument estimates to this parametric assumption. The method is straightforward to implement using our companion R package formulaiv. We use our method to reanalyze the applications in both Borusyak and Hull (2023) and Borusyak and Hull (2026). In both applications, we find that a variety of estimates of different signs and magnitudes can be recovered by slightly changing the shock distribution.

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38
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115
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Most heavily cited references

The works this paper leans on most, across its whole bibliography — not restricted to papers in our corpus. Ranked by composite intensity, which combines how often a work is mentioned, how many sections mention it, and how much of that falls in the main text rather than the appendix.

ReferenceIntensityMentionsSectionsMain text
1Borusyak, K. and P. Hull (2023) Nonrandom Exposure to Exogenous Shocks1.000539100%
2Borusyak, K. and P. Hull (2026) Optimal Formula Instruments1.000184100%
3Bosshart, L. and M. Weigand (2025) Crisis, State Capacity, and the Rise of Autocracy a Design-Based Analysis of the Thirty Years' War0.64422100%
4Boyd, S. and L. Vandenberghe (2004) Convex Optimization0.64422100%
5Buhler, M. and A. Dickens (2025) National Content and Local Political Consequences: Evidence from Public and Private Television0.64422100%
6Charnes, A. and W. W. Cooper (1962) Programming with Linear Fractional Functionals0.64422100%
7Currie, J. and J. Gruber (1996) Health Insurance Eligibility, Utilization of Medical Care, and Child Health0.64422100%
8Dell, M. and B. A. Olken (2020) The Development Effects of the Extractive Colonial Economy: The Dutch Cultivation System in Java0.64422100%
9Frean, M., J. Gruber, and B. D. Sommers (2017) Premium subsidies, the mandate, and Medicaid expansion: Coverage effects of the Affordable Care Act0.64422100%
10Moroni, G., C. Nicoletti, K. G. Salvanes, and E. Tominey (2025) Gender Equality through Marriage, IZA Discussion Paper 18288, Institute of Labor Economics (IZA), Bonn0.64422100%

Showing the top 10 of 38 scored citations.