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IFAU - Institute for Evaluation of Labour Market and Education Policy Working Paper Series
IFAU - Institute for Evaluation of Labour Market and Education Policy

No 2015:12:
Direct and indirect treatment effects: causal chains and mediation analysis with instrumental variables

Markus Frölich () and Martin Huber ()

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 identi-fication 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.

Keywords: Direct treatment effects; mediation analysis; (follow links to similar papers)

JEL-Codes: C13; C14; (follow links to similar papers)

73 pages, June 4, 2015

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