An economist estimates returns to education using distance to nearest community college as an instrument (rationale: distance affects enrollment exogenously, not earnings directly apart from education's effect).

First-stage: $\text{Years of School} = 11.2 - 0.28 \cdot \text{Distance}$ Reduced-form: $\text{Log Earnings} = 2.9 - 0.042 \cdot \text{Distance}$

The two-stage least squares (IV) estimate of the return to one additional year of education is: