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Shrinkage Bayesian Causal Forest with Instrumental Variable

Author

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  • Lennard Ma{ss}mann
  • Jens Klenke

Abstract

Discovering interpretable subgroups whose complier effects deviate from the average is a central goal of instrumental variable analysis under imperfect compliance, yet existing tree-based methods degrade when most covariates are irrelevant to the effect. We propose Shrinkage Bayesian Causal Forest with Instrumental Variable (SBCF-IV) for discovering and estimating subgroups with heterogeneous Complier Average Causal Effects (CACE) in sparse high-dimensional settings. SBCF-IV places a sparsity-inducing Dirichlet prior on the splitting probabilities of the Bayesian Additive Regression Trees that estimate the conditional intention-to-treat and the complier share, concentrating posterior mass on the few covariates that moderate the complier effect and thereby regularizing effect estimation. The posterior split frequencies additionally enter a downstream CART as variable-level costs that steer the partition toward relevant moderators, providing an interpretable division of the covariate space. Monte Carlo experiments show that, as the share of irrelevant covariates grows, SBCF-IV recovers the true partition more reliably than its non-sparse predecessor BCF-IV at the tree and unit level, and retains nominal coverage where BCF-IV's intervals deteriorate. We apply the method to the Oregon Health Insurance Experiment and the 401(k) eligibility data.

Suggested Citation

  • Lennard Ma{ss}mann & Jens Klenke, 2026. "Shrinkage Bayesian Causal Forest with Instrumental Variable," Papers 2609.18903, arXiv.org.
  • Handle: RePEc:arx:papers:2609.18903
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    References listed on IDEAS

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    1. Kwonsang Lee & Dylan S. Small & Francesca Dominici, 2021. "Discovering Heterogeneous Exposure Effects Using Randomization Inference in Air Pollution Studies," Journal of the American Statistical Association, Taylor & Francis Journals, vol. 116(534), pages 569-580, April.
    2. Imbens,Guido W. & Rubin,Donald B., 2015. "Causal Inference for Statistics, Social, and Biomedical Sciences," Cambridge Books, Cambridge University Press, number 9780521885881, June.
    3. Guihua Wang & Jun Li & Wallace J. Hopp, 2022. "An Instrumental Variable Forest Approach for Detecting Heterogeneous Treatment Effects in Observational Studies," Management Science, INFORMS, vol. 68(5), pages 3399-3418, May.
    4. Jeffrey M Wooldridge, 2010. "Econometric Analysis of Cross Section and Panel Data," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262232588, December.
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    Cited by:

    1. Karolina Gliszczy'nska-Schroeder, 2026. "Estimating Heterogeneous Causal Effects with Tree-Based Methods under Imperfect Compliance," Papers 2609.31769, arXiv.org.

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