Working Paper: CEPR ID: DP15319
Authors: Kirill Borusyak; Peter Hull
Abstract: We develop new tools for estimating the causal effects of treatments or instruments that combine multiple sources of variation according to a known formula. Examples include treatments capturing spillovers in social and transportation networks, simulated instruments for policy eligibility, and shift-share instruments. We show how exogenous shocks to some, but not all, determinants of such variables can be leveraged while avoiding omitted variables bias. Our solution involves specifying counterfactual shocks that may as well have been realized and adjusting for a summary measure of non-randomness in shock exposure: the average treatment (or instrument) across such counterfactuals. We further show how to use shock counterfactuals for valid finite-sample inference, and characterize the valid instruments that are asymptotically efficient. We apply this framework to address bias when estimating employment effects of market access growth from Chinese high-speed rail construction, and to boost power when estimating coverage effects of expanded Medicaid eligibility.
Keywords: treatment effects; identification strategies; randomization; inference; natural experiments; instrumental variables; market access; simulated instruments; shift-share IV; network spillovers
JEL Codes: C21; C26; R40; I13; F14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| nonrandom exposure to exogenous shocks (C22) | omitted variable bias (C20) |
| counterfactual shocks (D89) | omitted variable bias (C20) |
| Medicaid eligibility (I18) | efficiency of estimates regarding Medicaid eligibility effects (I18) |
| recentered instrument (C26) | causal effect of market access on employment growth (F66) |
| market access (L17) | employment growth (O49) |