Flores-Lagunes paper on treatments effects with an invalid instrument published in JBES
Sep 30, 2013
Carlos A. Flores & Alfonso Flores-Lagunes
Journal of Business and Economic Statistics, September 2013
The authors derive nonparametric bounds for local average treatment effects (LATE) without imposing the exclusion restriction assumption or requiring an outcome with bounded support. Instead, we employ assumptions requiring weak monotonicity of mean potential and counterfactual outcomes within or across subpopulations defined by the values of the potential treatment status under each value of the instrument.
The key element in the authors derivation is a result relating LATE to a causal mediation effect, which allows them to exploit partial identification results from the causal mediation analysis literature. The bounds are employed to analyze the effect of attaining a GED, high school, or vocational degree on future labor market outcomes using randomization into a training program as an invalid instrument. The resulting bounds are informative, indicating that the local effect when assigned to training for those whose degree attainment is affected by the instrument is at most 12.7 percentage points on employment and $64.4 on weekly earnings.