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Interpreting pre-trends as anticipation: Impact on estimated treatment effects from tort reform

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  • Malani, Anup
  • Reif, Julian

Abstract

While conducting empirical work, researchers sometimes observe changes in outcomes before adoption of a new policy. The conventional diagnosis is that treatment is endogenous. This observation is also consistent, however, with anticipation effects that arise naturally out of many theoretical models. This paper illustrates that distinguishing endogeneity from anticipation matters greatly when estimating treatment effects. It provides a framework for comparing different methods for estimating anticipation effects and proposes a new set of instrumental variables to address the problem that subjects' expectations are unobservable. Finally, this paper examines a specific set of tort reforms that was not targeted at physicians but was likely anticipated by them. Interpreting pre-trends as evidence of anticipation increases the estimated effect of these reforms by a factor of two compared to a model that ignores anticipation.

Suggested Citation

  • Malani, Anup & Reif, Julian, 2015. "Interpreting pre-trends as anticipation: Impact on estimated treatment effects from tort reform," Journal of Public Economics, Elsevier, vol. 124(C), pages 1-17.
  • Handle: RePEc:eee:pubeco:v:124:y:2015:i:c:p:1-17
    DOI: 10.1016/j.jpubeco.2015.01.001
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    More about this item

    Keywords

    Anticipation; Medical malpractice; Endogeneity; Tort reform;

    JEL classification:

    • C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General
    • K13 - Law and Economics - - Basic Areas of Law - - - Tort Law and Product Liability; Forensic Economics
    • J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General

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