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Direct and indirect treatment effects: causal chains and mediation analysis with instrumental variables

Author

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  • Markus Frölich

    (Institute for Fiscal Studies)

  • Martin Huber

    (Institute for Fiscal Studies)

Abstract

This paper discusses the nonparametric identification of causal direct and indirect effects of a binary treatment based on instrumental variables. We identify the indirect effect, which operates through a mediator (i.e. intermediate variable) that is situated on the causal path between the treatment and the outcome, as well as the unmediated direct effect of the treatment using distinct instruments for the endogenous treatment and the endogenous mediator. We examine different settings to obtain nonparametric identification of (natural) direct and indirect as well as controlled direct effects for continuous and discrete mediators and continuous and discrete instruments. We illustrate our approach in two applications: to disentangle the effects (i) of education on health, which may be mediated by income, and (ii) of the Job Corps training program, which may affect earnings indirectly via working longer hours and directly via higher wages per hour.

Suggested Citation

  • Markus Frölich & Martin Huber, 2014. "Direct and indirect treatment effects: causal chains and mediation analysis with instrumental variables," CeMMAP working papers CWP31/14, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
    • Handle: RePEc:ifs:cemmap:31/14
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    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models

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