Consistent Estimation of Treatment Effects Under Endogenous Heteroskedasticity

37 Pages Posted: 21 Mar 2018

See all articles by Jason Abrevaya

Jason Abrevaya

University of Texas at Austin

Haiqing Xu

Department of Economics, University of Texas at Austin

Date Written: March 17, 2018

Abstract

The empirical literature on program evaluation limits its scope almost exclusively to models where treatment effects are homogenous for observationally identical individuals. This paper considers a treatment effect model in which treatment effects may be heterogeneous, even among observationally identical individuals. Specifically, extending the classical instrumental variables (IV) model with an endogenous binary treatment and a binary instrument, we allow the heteroskedasticity of the error disturbance to also depend upon the treatment variable so that treatment has both mean and variance effects on the outcome. In this endogenous heteroskedasticity IV (EHIV) model with heterogeneous individual treatment effects, the standard IV estimator can be inconsistent and lead to incorrect inference. After showing identification of the mean and variance treatment effects in a nonparametric version of the EHIV model, we provide closed-form estimators for the linear EHIV for the mean and variance treatment effects and the individual treatment effects (ITE). Asymptotic properties of the estimators are provided. A Monte Carlo simulation investigates the performance of the proposed approach, and an empirical application regarding the effects of fertility on female labor supply is considered.

Keywords: endogenous heteroskedasticity, individual treatment effects, average treatment effects, local average treatment effects, instrumental variable

JEL Classification: C14, C30, C31

Suggested Citation

Abrevaya, Jason and Xu, Haiqing, Consistent Estimation of Treatment Effects Under Endogenous Heteroskedasticity (March 17, 2018). Available at SSRN: https://ssrn.com/abstract=3142876 or http://dx.doi.org/10.2139/ssrn.3142876

Jason Abrevaya

University of Texas at Austin ( email )

2317 Speedway
Austin, TX 78712
United States

Haiqing Xu (Contact Author)

Department of Economics, University of Texas at Austin ( email )

Austin, TX 78712
United States

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