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Too LATE for Natural Experiments: A Critique of Local Average Treatment Effects Using the Example of Angrist and Evans (1998)

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  • Öberg, Stefan

Abstract

There has been a fundamental flaw in the conceptual design of many natural experiments used in the economics literature, particularly among studies aiming to estimate a local average treatment effect (LATE). When we use an instrumental variable (IV) to estimate a LATE, the IV only has an indirect effect on the treatment of interest. Such IVs do not work as intended and will produce severely biased and/or uninterpretable results. This comment demonstrates that the LATE does not work as previously thought and explains why using the natural experiment proposed by Angrist and Evans (1998) as the example.

Suggested Citation

  • Öberg, Stefan, 2019. "Too LATE for Natural Experiments: A Critique of Local Average Treatment Effects Using the Example of Angrist and Evans (1998)," SocArXiv acdv4, Center for Open Science.
    • Handle: RePEc:osf:socarx:acdv4
    DOI: 10.31219/osf.io/acdv4
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    1. Guido W. Imbens, 2020. "Potential Outcome and Directed Acyclic Graph Approaches to Causality: Relevance for Empirical Practice in Economics," Journal of Economic Literature, American Economic Association, vol. 58(4), pages 1129-1179, December.
    2. Rosenzweig, Mark R & Wolpin, Kenneth I, 1980. "Testing the Quantity-Quality Fertility Model: The Use of Twins as a Natural Experiment," Econometrica, Econometric Society, vol. 48(1), pages 227-240, January.
    3. Norling, Johannes, 2018. "Measuring heterogeneity in preferences over the sex of children," Journal of Development Economics, Elsevier, vol. 135(C), pages 199-221.
    4. Guido W. Imbens, 2010. "Better LATE Than Nothing: Some Comments on Deaton (2009) and Heckman and Urzua (2009)," Journal of Economic Literature, American Economic Association, vol. 48(2), pages 399-423, June.
    5. Åslund, Olof & Grönqvist, Hans, 2010. "Family size and child outcomes: Is there really no trade-off?," Labour Economics, Elsevier, vol. 17(1), pages 130-139, January.
    6. Öberg, Stefan, 2018. "Instrumental variables based on twin births are by definition not valid," Göteborg Papers in Economic History 23, University of Gothenburg, Unit for Economic History.
    7. Öberg, Stefan, 2018. "Instrumental variables based on twin births are by definition not valid (v.3.0)," SocArXiv zux9s, Center for Open Science.
    8. Imbens,Guido W. & Rubin,Donald B., 2015. "Causal Inference for Statistics, Social, and Biomedical Sciences," Cambridge Books, Cambridge University Press, number 9780521885881.
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    Cited by:

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    2. Hamark, Jesper & Turner, Russell, 2021. "Wage distribution within the Swedish State Railways, 1877–1951: Material and methods," Göteborg Papers in Economic History 28, University of Gothenburg, Unit for Economic History.

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    More about this item

    JEL classification:

    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General
    • J13 - Labor and Demographic Economics - - Demographic Economics - - - Fertility; Family Planning; Child Care; Children; Youth

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