Scandinavian Working Papers in Economics

Memorandum,
Oslo University, Department of Economics

No 19/2005: Time and Causality: A Monte Carlo Assessment of the Timing-of-Events Approach

Simen Gaure (), Knut Røed () and Tao Zhang ()
Additional contact information
Simen Gaure: Centre for Information Technology Services, University of Oslo and The Ragnar Frisch Centre for Economic Research, Postal: Gaustadalléen 21, 0349 Oslo, Norway
Knut Røed: The Ragnar Frisch Centre for Economic Research, Postal: Gaustadalléen 21, 0349 Oslo, Norway
Tao Zhang: The Ragnar Frisch Centre for Economic Research, Postal: Gaustadalléen 21, 0349 Oslo, Norway

Abstract: We present new Monte Carlo evidence regarding the feasibility of separating causality from selection within non-experimental interval-censored duration data, by means of the nonparametric maximum likelihood estimator (NPMLE). Key findings are: i) the NPMLE is extremely reliable, and it accurately separates the causal effects of treatment and duration dependence from sorting effects, almost regardless of the true unobserved heterogeneity distribution; ii) the NPMLE is normally distributed, and standard errors can be computed directly from the optimally selected model; and iii)unjustified restrictions on the heterogeneity distribution, e.g., in terms of a prespecified number of support points, may cause substantial bias.

Keywords: NPMLE; treatment effect

JEL-codes: C14; C15; C41

60 pages, August 5, 2005

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