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Instrumental Variables, Selection Models, and Tight Bounds on the Average Treatment Effect

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  • James J. Heckman
  • Edward J. Vytlacil

Abstract

This paper exposits and relates two distinct approaches to bounding the average treatment effect. One approach, based on instrumental variables, is due to Manski (1990, 1994), who derives tight bounds on the average treatment effect under a mean independence form of the instrumental variables (IV) condition. The second approach, based on latent index models, is due to Heckman and Vytlacil (1999, 2000a), who derive bounds on the average treatment effect that exploit the assumption of a nonparametric selection model with an exclusion restriction. Their conditions imply the instrumental variable condition studied by Manski, so that their conditions are stronger than the Manski conditions. In this paper, we study the relationship between the two sets of bounds implied by these alternative conditions. We show that: (1) the Heckman and Vytlacil bounds are tight given their assumption of a nonparametric selection model; (2) the Manski bounds simplify to the Heckman and Vytlacil bounds under the nonparametric selection model assumption.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Technical Working Papers with number 0259.

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Date of creation: Aug 2000
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Handle: RePEc:nbr:nberte:0259

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References

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  1. repec:att:wimass:8909 is not listed on IDEAS
  2. Manski, Charles F, 1990. "Nonparametric Bounds on Treatment Effects," American Economic Review, American Economic Association, American Economic Association, vol. 80(2), pages 319-23, May.
  3. Manski, C.F., 1990. "The Selection Problem," Working papers, Wisconsin Madison - Social Systems 90-12, Wisconsin Madison - Social Systems.
  4. Joshua D. Angrist & Guido W. Imbens, 1995. "Identification and Estimation of Local Average Treatment Effects," NBER Technical Working Papers, National Bureau of Economic Research, Inc 0118, National Bureau of Economic Research, Inc.
  5. Charles F. Manski & John V. Pepper, 2000. "Monotone Instrumental Variables, with an Application to the Returns to Schooling," Econometrica, Econometric Society, Econometric Society, vol. 68(4), pages 997-1012, July.
  6. Heckman, James J, 1990. "Varieties of Selection Bias," American Economic Review, American Economic Association, American Economic Association, vol. 80(2), pages 313-18, May.
  7. Heckman, James J & Smith, Jeffrey, 1997. "Making the Most Out of Programme Evaluations and Social Experiments: Accounting for Heterogeneity in Programme Impacts," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 64(4), pages 487-535, October.
  8. James J. Heckman & Edward J. Vytlacil, 2000. "Local Instrumental Variables," NBER Technical Working Papers, National Bureau of Economic Research, Inc 0252, National Bureau of Economic Research, Inc.
  9. Edward Vytlacil, 2002. "Independence, Monotonicity, and Latent Index Models: An Equivalence Result," Econometrica, Econometric Society, Econometric Society, vol. 70(1), pages 331-341, January.
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Cited by:
  1. Michael Gebel & Friedhelm Pfeiffer, 2010. "Educational Expansion and Its Heterogeneous Returns for Wage Workers," Schmollers Jahrbuch : Journal of Applied Social Science Studies / Zeitschrift für Wirtschafts- und Sozialwissenschaften, Duncker & Humblot, Berlin, Duncker & Humblot, Berlin, vol. 130(1), pages 19-42.
  2. Hujer, Reinhard & Thomsen, Stephan L., 2006. "Wirksamkeit von Arbeitsbeschaffungsmaßnahmen in Deutschland: Empirische Befunde mikroökonometrischer Analysen," ZEW Discussion Papers, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research 06-54, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  3. David S. Lee, 2002. "Trimming for Bounds on Treatment Effects with Missing Outcomes," NBER Technical Working Papers, National Bureau of Economic Research, Inc 0277, National Bureau of Economic Research, Inc.
  4. Jay Bhattacharya & Azeem Shaikh & Edward Vytlacil, 2005. "Treatment Effect Bounds: An Application to Swan-Ganz Catheterization," NBER Working Papers 11263, National Bureau of Economic Research, Inc.
  5. Michael Gerfin & Martin Schellhorn, 2006. "Nonparametric bounds on the effect of deductibles in health care insurance on doctor visits - Swiss evidence," Health Economics, John Wiley & Sons, Ltd., vol. 15(9), pages 1011-1020.

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