A Simple and Successful Method to Shrink the Weight
40 Pages Posted: 24 Mar 2013
Date Written: March 23, 2013
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: Suggested Citation