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Estimating distributions of potential outcomes using local instrumental variables with an application to changes in college enrollment and wage inequality

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Author Info
Pedro Carneiro () (Institute for Fiscal Studies and University College London)
Sokbae 'Simon' Lee () (Institute for Fiscal Studies and University College London)

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Abstract

This paper extends the method of local instrumental variables developed by Heckman and Vytlacil (1999, 2001, 2005) to the estimation of not only means, but also distributions of potential outcomes. The newly developed method is illustrated by applying it to changes in college enrollment and wage inequality using data from the National Longitudinal Survey of Youth of 1979. Increases in college enrollment cause changes in the distribution of ability among college and high school graduates. This paper estimates a semiparametric selection model of schooling and wages to show that, for fixed skill prices, a 14% increase in college participation (analogous to the increase observed in the 1980s), reduces the college premium by 12% and increases the 90-10 percentile ratio among college graduates by 2%.

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Publisher Info
Paper provided by Centre for Microdata Methods and Practice, Institute for Fiscal Studies in its series CeMMAP working papers with number CWP01/09.

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Date of creation: Jan 2009
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Handle: RePEc:ifs:cemmap:01/09

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Find related papers by JEL classification:
C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Semiparametric and Nonparametric Methods
C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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  1. Abadie A., 2002. "Bootstrap Tests for Distributional Treatment Effects in Instrumental Variable Models," Journal of the American Statistical Association, American Statistical Association, vol. 97, pages 284-292, March. [Downloadable!] (restricted)
  2. Andrew Chesher, 2003. "Identification in Nonseparable Models," Econometrica, Econometric Society, vol. 71(5), pages 1405-1441, 09. [Downloadable!] (restricted)
  3. James J. Heckman & Sergio Urzua & Edward J. Vytlacil, 2006. "Understanding Instrumental Variables in Models with Essential Heterogeneity," NBER Working Papers 12574, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  4. Costas Meghir & Luigi Pistaferri, 2004. "Income Variance Dynamics and Heterogeneity," Econometrica, Econometric Society, vol. 72(1), pages 1-32, 01. [Downloadable!] (restricted)
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  5. James Heckman & Hidehiko Ichimura & Jeffrey Smith & Petra Todd, 1998. "Characterizing Selection Bias Using Experimental Data," Econometrica, Econometric Society, vol. 66(5), pages 1017-1098, September.
    Other versions:
  6. Joel L. Horowitz & Sokbae Lee, 2007. "Nonparametric Instrumental Variables Estimation of a Quantile Regression Model," Econometrica, Econometric Society, vol. 75(4), pages 1191-1208, 07. [Downloadable!] (restricted)
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  7. Stephen V. Cameron & Christopher Taber, 2004. "Estimation of Educational Borrowing Constraints Using Returns to Schooling," Journal of Political Economy, University of Chicago Press, vol. 112(1), pages 132-182, February. [Downloadable!] (restricted)
  8. Mitali Das & Whitney K. Newey & Francis Vella, 2003. "Nonparametric Estimation of Sample Selection Models," Review of Economic Studies, Blackwell Publishing, vol. 70(1), pages 33-58, January.
  9. Hidehiko Ichimura & Christopher R. Taber, 2000. "Direct Estimation of Policy Impacts," NBER Technical Working Papers 0254, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  10. Heckman, James J. & Navarro, Salvador, 2007. "Dynamic discrete choice and dynamic treatment effects," Journal of Econometrics, Elsevier, vol. 136(2), pages 341-396, February. [Downloadable!] (restricted)
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  11. Lee, Sokbae, 2007. "Endogeneity in quantile regression models: A control function approach," Journal of Econometrics, Elsevier, vol. 141(2), pages 1131-1158, December. [Downloadable!] (restricted)
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  12. David Card & Thomas Lemieux, 2001. "Can Falling Supply Explain The Rising Return To College For Younger Men? A Cohort-Based Analysis," The Quarterly Journal of Economics, MIT Press, vol. 116(2), pages 705-746, May. [Downloadable!] (restricted)
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  13. Edward Vytlacil & Nese Yildiz, 2007. "Dummy Endogenous Variables in Weakly Separable Models," Econometrica, Econometric Society, vol. 75(3), pages 757-779, 05. [Downloadable!] (restricted)
  14. Robinson, Peter M, 1988. "Root- N-Consistent Semiparametric Regression," Econometrica, Econometric Society, vol. 56(4), pages 931-54, July. [Downloadable!] (restricted)
  15. Imbens, Guido W & Angrist, Joshua D, 1994. "Identification and Estimation of Local Average Treatment Effects," Econometrica, Econometric Society, vol. 62(2), pages 467-75, March. [Downloadable!] (restricted)
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  16. Abadie, Alberto, 2003. "Semiparametric instrumental variable estimation of treatment response models," Journal of Econometrics, Elsevier, vol. 113(2), pages 231-263, April. [Downloadable!] (restricted)
  17. Card, David, 2001. "Estimating the Return to Schooling: Progress on Some Persistent Econometric Problems," Econometrica, Econometric Society, vol. 69(5), pages 1127-60, September.
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  18. Kling, Jeffrey R, 2001. "Interpreting Instrumental Variables Estimates of the Returns to Schooling," Journal of Business & Economic Statistics, American Statistical Association, vol. 19(3), pages 358-64, July.
  19. Edward Vytlacil, 2002. "Independence, Monotonicity, and Latent Index Models: An Equivalence Result," Econometrica, Econometric Society, vol. 70(1), pages 331-341, January. [Downloadable!] (restricted)
  20. Hansen, Karsten T. & Heckman, James J. & Mullen, K.J.Kathleen J., 2004. "The effect of schooling and ability on achievement test scores," Journal of Econometrics, Elsevier, vol. 121(1-2), pages 39-98. [Downloadable!] (restricted)
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  21. Chernozhukov, Victor & Hansen, Christian, 2006. "Instrumental quantile regression inference for structural and treatment effect models," Journal of Econometrics, Elsevier, vol. 132(2), pages 491-525, June. [Downloadable!] (restricted)
  22. Pedro Carneiro & James J. Heckman, 2002. "The Evidence on Credit Constraints in Post-Secondary Schooling," NBER Working Papers 9055, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  23. Ma, Lingjie & Koenker, Roger, 2006. "Quantile regression methods for recursive structural equation models," Journal of Econometrics, Elsevier, vol. 134(2), pages 471-506, October. [Downloadable!] (restricted)
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  24. Eric D. Gould, 2002. "Rising Wage Inequality, Comparative Advantage, and the Growing Importance of General Skills in the United States," Journal of Labor Economics, University of Chicago Press, vol. 20(1), pages 105-147, January. [Downloadable!]
  25. Heckman, James J & Sedlacek, Guilherme L, 1990. "Self-selection and the Distribution of Hourly Wages," Journal of Labor Economics, University of Chicago Press, vol. 8(1), pages S329-63, January. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Victor Chernozhukov & Sokbae 'Simon' Lee & Adam Rosen, 2009. "Intersection Bounds: estimation and inference," CeMMAP working papers CWP19/09, Centre for Microdata Methods and Practice, Institute for Fiscal Studies. [Downloadable!]
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