Working Paper: NBER ID: w21391
Authors: Damon Jones
Abstract: We explore a key underlying assumption, the exclusion restriction, commonly used in interpreting IV estimates in the presence of heterogenous treatment effects as a local average treatment effect (LATE). We show through a series of simple examples that in some commonly featured cases that this assumption is likely to be violated among inframarginal agents, i.e. the always- and never-takers. This violation of the exclusion restriction will generally confound the LATE interpretation of the associated IV results. We discuss potential adjustments to IV estimates in the presence of this bias.
Keywords: No keywords provided
JEL Codes: C26; I26; J01
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| tuition subsidy (H20) | college attendance (I23) |
| college attendance (I23) | earnings (J31) |
| tuition subsidy (H20) | earnings (J31) |
| compulsory school laws (J88) | educational attainment (I21) |
| compulsory school laws (J88) | labor supply (J20) |
| exclusion restriction violation (C24) | biased LATE estimates (C51) |