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Poorly measured confounders are more useful on the left than on the right

Pei, Zhuan, Pischke, Jorn-Steffen and Schwandt, Hannes (2018) Poorly measured confounders are more useful on the left than on the right. CEP Discussion Papers (CEPDP1539). Centre for Economic Performance, London School of Economics and Political Science, London, UK.

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Abstract

Researchers frequently test identifying assumptions in regression based research designs (which include instrumental variables or difference-in-differences models) by adding additional control variables on the right hand side of the regression. If such additions do not affect the coefficient of interest (much) a study is presumed to be reliable. We caution that such invariance may result from the fact that the observed variables used in such robustness checks are often poor measures of the potential underlying confounders. In this case, a more powerful test of the identifying assumption is to put the variable on the left hand side of the candidate regression. We provide derivations for the estimators and test statistics involved, as well as power calculations, which can help applied researchers interpret their findings. We illustrate these results in the context of estimating the returns to schooling.

Item Type: Monograph (Discussion Paper)
Official URL: http://cep.lse.ac.uk/
Additional Information: © 2018 The Authors
Divisions: Centre for Economic Performance
Subjects: H Social Sciences > HB Economic Theory
J Political Science > JC Political theory
JEL classification: C - Mathematical and Quantitative Methods > C3 - Econometric Methods: Multiple; Simultaneous Equation Models; Multiple Variables; Endogenous Regressors > C31 - Cross-Sectional Models; Spatial Models; Treatment Effect Models
C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C52 - Model Evaluation and Selection
Sets: Research centres and groups > Centre for Economic Performance (CEP)
Date Deposited: 26 Jun 2018 15:39
Last Modified: 19 Feb 2019 21:36
Funders: Economic and Social Research Council
URI: http://eprints.lse.ac.uk/id/eprint/88690

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