TESTING FOR UNOBSERVED HETEROGENEOUS TREATMENT EFFECTS WITH OBSERVATIONAL DATA

DOI10.1017/S0266466622000147OpenAlexW3194675589MaRDI QIDQ6156586FDOQ6156586

Authors: Yu-Chin Hsu, Ta-Cheng Huang, Haiqing Xu 

Publication date: 13 June 2023

Published in: Econometric Theory (Search for Journal in Brave)

Abstract: Unobserved heterogeneous treatment effects have been emphasized in the recent policy evaluation literature (see e.g., Heckman and Vytlacil, 2005). This paper proposes a nonparametric test for unobserved heterogeneous treatment effects in a treatment effect model with a binary treatment assignment, allowing for individuals' self-selection to the treatment. Under the standard local average treatment effects assumptions, i.e., the no defiers condition, we derive testable model restrictions for the hypothesis of unobserved heterogeneous treatment effects. Also, we show that if the treatment outcomes satisfy a monotonicity assumption, these model restrictions are also sufficient. Then, we propose a modified Kolmogorov-Smirnov-type test which is consistent and simple to implement. Monte Carlo simulations show that our test performs well in finite samples. For illustration, we apply our test to study heterogeneous treatment effects of the Job Training Partnership Act on earnings and the impacts of fertility on family income, where the null hypothesis of homogeneous treatment effects gets rejected in the second case but fails to be rejected in the first application.

Full work available at URL: https://arxiv.org/abs/1803.07514

Mathematics Subject Classification ID

Applications of statistics to economics (62P20)

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