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Too LATE for Natural Experiments: A Critique of Local Average Treatment Effects Using the Example of Angrist and Evans (1998)

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  • Öberg, Stefan

Abstract

There has been a fundamental flaw in the conceptual design of many natural experiments used in the economics literature, particularly among studies aiming to estimate a local average treatment effect (LATE). When we use an instrumental variable (IV) to estimate a LATE, the IV only has an indirect effect on the treatment of interest. Such IVs do not work as intended and will produce severely biased and/or uninterpretable results. This comment demonstrates that the LATE does not work as previously thought and explains why using the natural experiment proposed by Angrist and Evans (1998) as the example.

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  • Öberg, Stefan, 2019. "Too LATE for Natural Experiments: A Critique of Local Average Treatment Effects Using the Example of Angrist and Evans (1998)," SocArXiv acdv4_v1, Center for Open Science.
    • Handle: RePEc:osf:socarx:acdv4_v1
    DOI: 10.31219/osf.io/acdv4_v1
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