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Is Monotonicity in an IV and RD Design Testable? No, But You Can Still Check on it

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Abstract

Whenever treatment effects are heterogeneous and there is sorting into treatment based on the gain, monotonicity is a condition that both Instrumental Variable and fuzzy Regression Discontinuity designs have to satisfy for their estimand to be interpretable as a LATE. Angrist and Imbens (1995) argue that the monotonicity assumption is testable whenever the treatment is multivalued. We show that their test is informative if counterfactuals are observed. Yet applying the test without observing counterfactuals, as it is generally done, is not. Nevertheless, we argue that monotonicity can and should be investigated using a mix of economic intuition and data patterns, just like other untestable assumptions in an IV or RD design. We provide examples in a variety of settings as a guide to practice.

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Paper provided by Economics Discipline Group, UTS Business School, University of Technology, Sydney in its series Working Paper Series with number 7.

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Length: 24
Date of creation: 01 Apr 2013
Date of revision:
Handle: RePEc:uts:ecowps:7

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  7. Dionissi Aliprantis, 2010. "Redshirting, compulsory schooling laws, and educational attainment," Working Paper 1012, Federal Reserve Bank of Cleveland.
  8. Keane, Michael P., 2010. "Structural vs. atheoretic approaches to econometrics," Journal of Econometrics, Elsevier, vol. 156(1), pages 3-20, May.
  9. Datar, Ashlesha, 2006. "Does delaying kindergarten entrance give children a head start?," Economics of Education Review, Elsevier, vol. 25(1), pages 43-62, February.
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