A Note on Endogenous Control Variables in Evaluation Studies
University of St. Gallen Economics Discussion Paper No. 2005-16
13 Pages Posted: 22 Aug 2005
Date Written: August 2005
The paper addresses the issue of potentially endogenous control variables in evaluation studies based on the assumption that selection bias can be avoided by conditioning on observed variables. It shows that the standard formulation of the conditional independence (CIA) or selection on observables assumption obscures the endogeneity problem. The paper clarifies the issue by suggesting a CIA based on exogenous (potential) outcomes as well as explicit exogeneity conditions. The refined CIA allows to asses the endogeneity bias as well as the plausibility of the CIA, because it allows a separate discussion of (i) the problems of missing variables that are necessary to avoid selection bias, and (ii) the problem that some of the control variables may be influenced by the treatment.
Keywords: Evaluation studies, matching methods, conditional independence assumption, endogeneity
JEL Classification: C21, C31
Suggested Citation: Suggested Citation