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Treatment Effect Heterogeneity in Theory and Practice

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  • Joshua D. Angrist

Abstract

Instrumental Variables (IV) methods identify internally valid causal effects for individuals whose treatment status is manipulable by the instrument at hand. Inference for other populations requires some sort of homogeneity assumption. This paper outlines a theoretical framework that nests all possible homogeneity assumptions for a causal treatment-effects model with a binary instrument. The framework suggests strategies for using IV estimates for extrapolation, while making it clear that efforts to go from local average treatment effects (LATE) to population average treatment effects are inherently speculative. These ideas are illustrated in an application using sibling-sex composition to estimate the effect of child-bearing on economic and marital outcomes for mothers with two or more children. The application is motivated by welfare reform, which penalizes further childbearing by welfare mothers on the grounds that more children make continued poverty and welfare receipt more likely. The empirical results generally support the notion of reduced labor supply and increased poverty rates as a consequence of additional childbearing, but evidence on the impact of childbearing on marital stability and welfare use is more tenuous. Another interesting finding is that for the sample of teen mothers, LATE is essentially equal to the population average treatment effect.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9708.

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Date of creation: May 2003
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Handle: RePEc:nbr:nberwo:9708

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  1. Angrist, Joshua D, 2001. "Estimations of Limited Dependent Variable Models with Dummy Endogenous Regressors: Simple Strategies for Empirical Practice," Journal of Business & Economic Statistics, American Statistical Association, vol. 19(1), pages 2-16, January.
  2. Arellano, Manuel, 2002. "Sargan's Instrumental Variables Estimation and the Generalized Method of Moments," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(4), pages 450-59, October.
  3. Alberto Abadie & Joshua Angrist & Guido Imbens, 1999. "Instrumental Variables Estimates of the Effect of Subsidized Training on the Quantiles of Trainee Earnings," Working papers 99-16, Massachusetts Institute of Technology (MIT), Department of Economics.
  4. Angrist, Joshua D & Evans, William N, 1998. "Children and Their Parents' Labor Supply: Evidence from Exogenous Variation in Family Size," American Economic Review, American Economic Association, vol. 88(3), pages 450-77, June.
  5. Peter C.B. Phillips, 2003. "Vision and Influence in Econometrics: John Denis Sargan," Cowles Foundation Discussion Papers 1393, Cowles Foundation for Research in Economics, Yale University.
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  7. Bronars, Stephen G & Grogger, Jeff, 1994. "The Economic Consequences of Unwed Motherhood: Using Twin Births as a Natural Experiment," American Economic Review, American Economic Association, vol. 84(5), pages 1141-56, December.
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  9. Jeff Grogger & Stephen G. Bronars, 1997. "The Effect of Welfare Payments on the Marriage and Fertility Behavior of Unwed Mothers: Results from a Twins Experiment," NBER Working Papers 6047, National Bureau of Economic Research, Inc.
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  12. 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.
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  21. Rebecca M. Blank, 2002. "Evaluating Welfare Reform in the United States," NBER Working Papers 8983, National Bureau of Economic Research, Inc.
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  23. Melissa Schettini Kearney, 2002. "Is There an Effect of Incremental Welfare Benefits on Fertility Behavior? A Look at the Family Cap," NBER Working Papers 9093, National Bureau of Economic Research, Inc.
  24. James J. Heckman & Edward J. Vytlacil, 2000. "Local Instrumental Variables," NBER Technical Working Papers 0252, National Bureau of Economic Research, Inc.
  25. Tim Heaton, 1990. "Marital stability throughout the child-rearing years," Demography, Springer, vol. 27(1), pages 55-63, February.
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