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Estimating Person-Centered Treatment (PeT) Effects Using Instrumental Variables

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  • Anirban Basu

Abstract

This paper builds on the methods of local instrumental variables developed by Heckman and Vytlacil (1999, 2001, 2005) to estimate person-centered treatment (PeT) effects that are conditioned on the person’s observed characteristics and averaged over the potential conditional distribution of unobserved characteristics that lead them to their observed treatment choices. PeT effects are more individualized than conditional treatment effects from a randomized setting with the same observed characteristics. PeT effects can be easily aggregated to construct any of the mean treatment effect parameters and, more importantly, are well-suited to comprehend individual-level treatment effect heterogeneity. The paper presents the theory behind PeT effects, studies their finite-sample properties using simulations and presents a novel analysis of treatment evaluation in health care.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18056.

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Date of creation: May 2012
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Publication status: published as Basu A. Person-Centered Treatment (PeT) effects using instrumental variables: An application to evaluating prostate cancer treatments.. 2012 National Bureau of Economic Research Working Paper No w18056. Journal of Applied Econometrics 2014; 29:671-691.
Handle: RePEc:nbr:nberwo:18056

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  1. 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, vol. 64(4), pages 487-535, October.
  2. Claxton, Karl, 1999. "The irrelevance of inference: a decision-making approach to the stochastic evaluation of health care technologies," Journal of Health Economics, Elsevier, vol. 18(3), pages 341-364, June.
  3. Heckman, James J. & Urzua, Sergio & Vytlacil, Edward, 2006. "Understanding Instrumental Variables in Models with Essential Heterogeneity," IZA Discussion Papers 2320, Institute for the Study of Labor (IZA).
  4. James J. Heckman & Edward Vytlacil, 2005. "Structural Equations, Treatment Effects and Econometric Policy Evaluation," NBER Working Papers 11259, National Bureau of Economic Research, Inc.
  5. Anirban Basu & Tomas J. Philipson, 2010. "The Impact of Comparative Effectiveness Research on Health and Health Care Spending," NBER Working Papers 15633, National Bureau of Economic Research, Inc.
  6. Anirban Basu, 2011. "Economics of Individualization in Comparative Effectiveness Research and a Basis for a Patient-Centered Health Care," NBER Working Papers 16900, National Bureau of Economic Research, Inc.
  7. Terza, Joseph V. & Basu, Anirban & Rathouz, Paul J., 2008. "Two-stage residual inclusion estimation: Addressing endogeneity in health econometric modeling," Journal of Health Economics, Elsevier, vol. 27(3), pages 531-543, May.
  8. Heckman, James, 2001. "Accounting for Heterogeneity, Diversity and General Equilibrium in Evaluating Social Programmes," Economic Journal, Royal Economic Society, vol. 111(475), pages F654-99, November.
  9. Pedro Carneiro & Sokbae 'Simon' Lee, 2009. "Estimating distributions of potential outcomes using local instrumental variables with an application to changes in college enrollment and wage inequality," CeMMAP working papers CWP01/09, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
  10. Garber, Alan M. & Phelps, Charles E., 1997. "Economic foundations of cost-effectiveness analysis," Journal of Health Economics, Elsevier, vol. 16(1), pages 1-31, February.
  11. Anirban Basu & James J. Heckman & Salvador Navarro-Lozano & Sergio Urzua, 2007. "Use of instrumental variables in the presence of heterogeneity and self-selection: an application to treatments of breast cancer patients," Health Economics, John Wiley & Sons, Ltd., vol. 16(11), pages 1133-1157.
  12. Amitabh Chandra & Douglas O. Staiger, 2007. "Productivity Spillovers in Health Care: Evidence from the Treatment of Heart Attacks," Journal of Political Economy, University of Chicago Press, vol. 115, pages 103-140.
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