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Research Highlights

Testing the Unconfoundedness Assumption via Inverse Probability Weighted Estimators of (L)ATT (with Stephen G. Donald and Robert P. Lieli, published in JOURNAL OF BUSINESS AND ECONOMICS in 2014)

  • Author Stephen G. Donald
    Yu-Chin Hsu
    Robert P. Lieli
  • Abstract We propose inverse probability weighted estimators for the local average treatment effect (LATE) and the local average treatment effect for the treated (LATT) under instrumental variable assumptions with covariates. We show that these estimators are asymptotically normal and efficient. When the (binary) instrument satisfies one-sided non-compliance, we propose a Durbin-Wu-Hausman-type test of whether treatment assignment is unconfounded conditional on some observables. The test is based on the fact that under one-sided non-compliance LATT coincides with the average treatment effect for the treated (ATT). We conduct Monte Carlo simulations to demonstrate, among other things, that part of the theoretical efficiency gain afforded by unconfoundedness in estimating ATT survives pre-testing. We illustrate the implementation of the test on data from training programs administered under the Job Training Partnership Act in the U.S.
  • Link http://amstat.tandfonline.com/doi/abs/10.1080/07350015.2014.888290#.VBJfhbFJWpo (Open New Window)