Practical Regression: Causality and Instrumental Variables

This is the tenth in a series of lecture notes which, if tied together into a textbook, might be entitled “Practical Regression.” The purpose of the notes is to supplement the theoretical content of most statistics texts with practical advice based on nearly three decades of experience of the author, combined with over one hundred years of experience of colleagues who have offered guidance. As the title “Practical Regression” suggests, these notes are a guide to performing regression in practice. 
This note uses the theory of "supplier-induced demand" from health economics to illustrate key issues including reverse causality, the role of instrumental variables in establishing causality, and the characteristics of good instruments.