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


Pei, Zhuan; Pischke, Jörn-Steffen; Schwandt, Hannes (2017). Poorly measured confounders are more useful on the left than on the right. NBER Working Paper Series 23232, National Bureau of Economic Research.

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 various strategies which have been suggested to identify the returns to schooling.

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 various strategies which have been suggested to identify the returns to schooling.

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Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Economics
Dewey Decimal Classification:330 Economics
JEL Classification:C31, C52
Language:English
Date:March 2017
Deposited On:03 May 2017 15:38
Last Modified:30 Aug 2017 01:39
Series Name:NBER Working Paper Series
Number of Pages:67
Official URL:http://www.nber.org/papers/w23232.pdf
Related URLs:http://www.nber.org/papers/w23232

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