A Simple and Successful Method to Shrink the Weight

40 Pages Posted: 24 Mar 2013

See all articles by Winfried Pohlmeier

Winfried Pohlmeier

University of Konstanz - Department of Economics & Center of Finance & Econometrics (CoFE)

Ruben R. Seiberlich

ZHAW School of Management and Law

Derya Uysal

Ludwig Maximilian University of Munich - Faculty of Economics

Date Written: March 23, 2013

Abstract

We propose a simple way to improve the efficiency of the average treatment effect on propensity score based estimators. As the weights become arbitrarily large for the propensity scores being close to one or zero, we propose to shrink the propensity scores away from these boundaries. Using a comprehensive Monte Carlo study we show that this simple method substantially reduces the mean squared error of the estimators in finite samples.

Keywords: Econometric evaluation, propensity score, penalizing, shrinkage, average treatment effect

JEL Classification: C14, C21

Suggested Citation

Pohlmeier, Winfried and Seiberlich, Ruben R. and Uysal, Selver Derya, A Simple and Successful Method to Shrink the Weight (March 23, 2013). Available at SSRN: https://ssrn.com/abstract=2238335 or http://dx.doi.org/10.2139/ssrn.2238335

Winfried Pohlmeier

University of Konstanz - Department of Economics & Center of Finance & Econometrics (CoFE) ( email )

Konstanz, D-78457
Germany

HOME PAGE: http://econometrics.wiwi.uni-konstanz.de

Ruben R. Seiberlich (Contact Author)

ZHAW School of Management and Law ( email )

St.-Georgen-Platz 2
Winterthur, 8401
Switzerland
+41589344669 (Phone)

HOME PAGE: http://www.zhaw.ch/en/about-us/person/seib/

Selver Derya Uysal

Ludwig Maximilian University of Munich - Faculty of Economics ( email )

Ludwigstrasse 28
Munich, D-80539
Germany

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