Scandinavian Working Papers in Economics
Göteborg Papers in Economic History,
University of Gothenburg, Unit for Economic History
No 25: Too LATE for Natural Experiments: A Critique of Local Average Treatment Effects Using the Example of Angrist and Evans (1998)
Stefan Öberg ()
Additional contact information
Stefan Öberg: Department of Economic History, School of Business, Economics and Law, Göteborg University, Postal: Box 720, SE 40530 Göteborg, Sweden
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.
Keywords: causal inference; natural experiment; local average treatment effect; complier average causal effect; instrumental variable
23 pages, November 5, 2019
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