Instrumental Variables with Unordered Treatments: Theory and Evidence from Returns to Fields of Study

65 Pages Posted: 20 Oct 2022

See all articles by Eskil Heinesen

Eskil Heinesen

Rockwool Foundation Research Unit

Christian Hvid

Novo Nordisk

Lars J. Kirkebøen

Statistics Norway

Edwin Leuven

University of Oslo - Department of Economics

Magne Mogstad

University of Chicago

Multiple version iconThere are 2 versions of this paper

Date Written: October 19, 2022

Abstract

We revisit the identification argument of Kirkeboen et al. (2016) who showed how one may combine instruments for multiple unordered treatments with information about individuals’ ranking of these treatments to achieve identification while allow- ing for both observed and unobserved heterogeneity in treatment effects. We show that the key assumptions underlying their identification argument have testable implications. We also provide a new characterization of the bias that may arise if these assumptions are violated. Taken together, these results allow researchers not only to test the underlying assumptions, but also to argue whether the bias from violation of these assumptions are likely to be economically meaningful. Guided and motivated by these results, we estimate and compare the earnings payoffs to post-secondary fields of study in Norway and Denmark. In each country, we apply the identification argument of Kirkeboen et al. (2016) to data on individuals’ ranking of fields of study and field-specific instruments from discontinuities in the admission systems. We empirically examine whether and why the payoffs to fields of study differ across the two countries. We find strong cross-country correlation in the payoffs to fields of study, especially after removing fields with violations of the assumptions underlying the identification argument.

Suggested Citation

Heinesen, Eskil and Hvid, Christian and Kirkebøen, Lars J. and Leuven, Edwin and Mogstad, Magne, Instrumental Variables with Unordered Treatments: Theory and Evidence from Returns to Fields of Study (October 19, 2022). University of Chicago, Becker Friedman Institute for Economics Working Paper No. 2022-142, Available at SSRN: https://ssrn.com/abstract=4253063 or http://dx.doi.org/10.2139/ssrn.4253063

Eskil Heinesen

Rockwool Foundation Research Unit ( email )

Sølvgade 10, 2.t.v.
Copenhagen K, DK-1307
Denmark

Christian Hvid

Novo Nordisk ( email )

Novo Allé
Bagsværd, 2880
Denmark

Lars J. Kirkebøen

Statistics Norway ( email )

N-0033 Oslo
Norway

Edwin Leuven

University of Oslo - Department of Economics ( email )

P.O. Box 1095 Blindern
N-0317 Oslo
Norway

Magne Mogstad (Contact Author)

University of Chicago ( email )

1101 East 58th Street
Chicago, IL 60637
United States

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