Confounder-instrument interaction Created 2026-09-28 Updated 2026-11-05
A confounder-instrument interaction occurs when an instrument's effect on treatment varies with a variable that also affects the outcome. If the conditional first-stage effect is , absence of this interaction means that is constant.
Let
and
Because contains all exposure-outcome confounding and is independent of , the exclusion restriction and the law of total expectation give
Likewise,
The no confounder-instrument interaction assumption says is constant. Relevance gives , so the Wald ratio is
the overall average treatment effect.