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Efficient Covariate Balancing for the Local Average Treatment Effect

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  • Phillip Heiler

Abstract

This article develops an empirical balancing approach for the estimation of treatment effects under two-sided noncompliance using a binary instrumental variable. The method weighs both treatment and outcome information with inverse probabilities to impose exact finite sample balance across instrument level groups. It is free of functional form assumptions on the outcome or the treatment selection step. By tailoring the loss function for the instrument propensity scores, the resulting treatment effect estimates are automatically weight normalized and exhibit both low bias and reduced variance in finite samples compared to conventional inverse probability weighting methods. We provide conditions for asymptotic normality and semiparametric efficiency and demonstrate how to use additional information about the treatment selection step for bias reduction in finite samples. A doubly robust extension is proposed as well. Monte Carlo simulations suggest that the theoretical advantages translate well to finite samples. The method is illustrated in an empirical example.

Suggested Citation

  • Phillip Heiler, 2022. "Efficient Covariate Balancing for the Local Average Treatment Effect," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 40(4), pages 1569-1582, October.
  • Handle: RePEc:taf:jnlbes:v:40:y:2022:i:4:p:1569-1582
    DOI: 10.1080/07350015.2021.1946067
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    Cited by:

    1. Simon Calmar Andersen & Louise Beuchert & Phillip Heiler & Helena Skyt Nielsen, 2023. "A Guide to Impact Evaluation under Sample Selection and Missing Data: Teacher's Aides and Adolescent Mental Health," Papers 2308.04963, arXiv.org.
    2. Sloczynski, Tymon & Uysal, Derya & Wooldridge, Jeffrey M., 2022. "Doubly Robust Estimation of Local Average Treatment Effects Using Inverse Probability Weighted Regression Adjustment," IZA Discussion Papers 15727, Institute of Labor Economics (IZA).

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