NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Beyond Random Assignment: Credible Inference of Causal Effects in Dynamic Economies

Christopher A. Hennessy, Ilya A. Strebulaev

NBER Working Paper No. 20978
Issued in February 2015, Revised in December 2015
NBER Program(s):   CF   LS   PE

Random assignment is insufficient for measured treatment responses to recover causal effects (comparative statics) in dynamic economies. We characterize analytically bias probabilities and magnitudes. If the policy variable is binary there is attenuation bias. With more than two policy states, treatment responses can undershoot, overshoot, or have incorrect signs. Under permanent random assignment, treatment responses overshoot (have incorrect signs) for realized changes opposite in sign to (small relative to) expected changes. We derive necessary and sufficient conditions, beyond random assignment, for correct inference of causal effects: martingale policy variable. Infinitesimal transition rates are only sufficient absent fixed costs. Stochastic monotonicity is sufficient for correct sign inference. If these conditions are not met, we show how treatment responses can nevertheless be corrected and mapped to causal effects or extrapolated to forecast responses to future policy changes within or across policy generating processes.

You may purchase this paper on-line in .pdf format from SSRN.com ($5) for electronic delivery.

Access to NBER Papers

You are eligible for a free download if you are a subscriber, a corporate associate of the NBER, a journalist, an employee of the U.S. federal government with a ".GOV" domain name, or a resident of nearly any developing country or transition economy.

If you usually get free papers at work/university but do not at home, you can either connect to your work VPN or proxy (if any) or elect to have a link to the paper emailed to your work email address below. The email address must be connected to a subscribing college, university, or other subscribing institution. Gmail and other free email addresses will not have access.

E-mail:

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w20978

Users who downloaded this paper also downloaded* these:
Chetty w20928 Behavioral Economics and Public Policy: A Pragmatic Perspective
Fischer and Karlan w20971 The Catch-22 of External Validity in the Context of Constraints to Firm Growth
Yagan w21003 Capital Tax Reform and the Real Economy: The Effects of the 2003 Dividend Tax Cut
Zingales w20894 Does Finance Benefit Society?
Attanasio, Cattan, Fitzsimons, Meghir, and Rubio-Codina w20965 Estimating the Production Function for Human Capital: Results from a Randomized Control Trial in Colombia
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us