LaLonde (1986) after Nearly Four Decades: Lessons Learned

In 1986, Robert LaLonde published an article that compared nonexperimental estimates to experimental benchmarks (LaLonde 1986). He concluded that the nonexperimental methods at the time could not systematically replicate experimental benchmarks, casting doubt on the credibility of these methods. Following LaLonde's critical assessment, there have been significant methodological advances and practical changes, including (i) an emphasis on estimators based on unconfoundedness, (ii) a focus on the importance of overlap in covariate distributions, (iii) the introduction of propensity score-based methods leading to doubly robust estimators, (iv) a greater emphasis on validation exercises to bolster research credibility, and (v) methods for estimating and exploiting treatment effect heterogeneity. To demonstrate the practical lessons from these advances, we reexamine the LaLonde data and the Imbens-Rubin-Sacerdote lottery data. We show that modern methods, when applied in contexts with sufficient covariate overlap, yield robust estimates for the adjusted differences between the treatment and control groups. However, this does not mean that these estimates are valid. To assess their credibility, validation exercises (such as placebo tests) are essential, whereas goodness of fit tests alone are inadequate. Our findings highlight the importance of closely examining the assignment process, carefully inspecting overlap, and conducting validation exercises when analyzing causal effects with nonexperimental data.