Working Paper: NBER ID: w27845
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: Causal inference; Omitted variable bias; Market access; Transportation infrastructure; High-speed rail
JEL Codes: C21; C26; F14; I13; R40
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| market access growth (L10) | employment growth (O49) |
| transportation upgrades (R42) | market access growth (L10) |
| transportation upgrades (R42) | employment growth (O49) |
| expected market access growth (F69) | market access growth (L10) |
| market access growth (adjusted) (F61) | employment growth (O49) |