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The Department of Economics and Finance at the Institute for Advanced Studies cordially invites you to the following Econometrics Research Seminar
Thursday, December 17, 2015
Attention – New Address
Institute for Advanced Studies
Josefstädter Straße 39, 1080 Vienna
Lecture Room E02, ground floor
9:00 am (Please note that the seminar will start at 9 am sharp!)
Tymon S³oczyñski
Warsaw School of Economics
New Evidence on Linear Regression and Treatment Effect Heterogeneity
Abstract: It is standard practice in applied work to rely on linear least squares regression to estimate the effect of a binary variable ("treatment") on some outcome of interest. In this paper I study the interpretation of the
regression estimand when treatment effects are in fact heterogeneous. I show that the coefficient on treatment is identical to the outcome of the following three-step procedure: first, calculate the linear projection of treatment on the vector of other covariates
("propensity score"); second, calculate average partial effects for both groups of interest ("treated" and "controls") from a regression of outcome on treatment, the propensity score, and their interaction; third, calculate a weighted average of these two
effects, with weights being inversely related to the unconditional probability that a unit belongs to a given group. Each of these steps is potentially problematic, but this last property – the reliance on implicit weights which are inversely related to the
proportion of each group – can have particularly devastating consequences for applied work. To illustrate the severity of this issue, I perform Monte Carlo simulations as well as replicate two prominent applied papers: Berger, Easterly, Nunn and Satyanath
(2013) on the effects of successful CIA interventions during the Cold War on imports from the US; and Martinez-Bravo (2014) on the effects of appointed officials on village-level electoral results in Indonesia. In both cases some of the conclusions change
dramatically after allowing for heterogeneity in effects.
We are looking forward to seeing you!
Institute for Advanced Studies
Department of Economics and Finance
Josefstädter Straße 39, 1080 Vienna, Austria
Tel.: +43 1 599 91 145
e-Mail:
economics@ihs.ac.at
http://economics.ihs.ac.at
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