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Estimating Group Effects Using Averages of Observables to Control for Sorting on Unobservables: School and Neighborhood Effects

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  • Joseph G. Altonji
  • Richard K. Mansfield

Abstract

We consider the classic problem of estimating group treatment effects when individuals sort based on observed and unobserved characteristics. Using a standard choice model, we show that controlling for group averages of observed individual characteristics potentially absorbs all the across-group variation in unobservable individual characteristics. We use this insight to bound the treatment effect variance of school systems and associated neighborhoods for various outcomes. Across multiple datasets, we find that a 90th versus 10th percentile school/neighborhood increases the high school graduation probability and college enrollment probability by at least 0.04 and 0.11 and permanent wages by 13.7 percent.

Suggested Citation

  • Joseph G. Altonji & Richard K. Mansfield, 2018. "Estimating Group Effects Using Averages of Observables to Control for Sorting on Unobservables: School and Neighborhood Effects," American Economic Review, American Economic Association, vol. 108(10), pages 2902-2946, October.
    • Handle: RePEc:aea:aecrev:v:108:y:2018:i:10:p:2902-46
    Note: DOI: 10.1257/aer.20141708
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    More about this item

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • H75 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Government: Health, Education, and Welfare
    • I21 - Health, Education, and Welfare - - Education - - - Analysis of Education
    • I26 - Health, Education, and Welfare - - Education - - - Returns to Education
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population

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