We show that when instruments are nearly exogenous, the two stage least squares t-statistic unpredictably over-rejects or under-rejects the null hypothesis that the endogenous regressor is insignificant and Anderson-Rubin test over-rejects the null. We prove that in the limit these tests are no...

An agent's productivity depends on his responsiveness to existing incentives ("drive"). Over the long term, this heterogeneity in drive may create significant incentives for the agent to work hard even with vanishingly small amount of existing incentives, explicit or implicit.