This post presents a simple explanation of the concept of “local average treatment effects” in the context of instrumental variables estimation.  I borrow shamelessly from the somewhat more advanced presentation in Imbens and Wooldridge’s lecture notes, which is a good place to look for further reading.

The basic idea underlying LATE is to acknowledge that different people (or different units more generally) generally have different causal effects for any given “treatment,” broadly defined.  It is common to talk about “the” causal effect of, say, education on earnings, or interest rates on growth, or pharmaceuticals on health, but if different people respond differently to education or to medical treatments and different countries respond differently to macroeconomic interventions, it’s not clear what we mean by “the” causal effect.  We can still talk coherently about distributions of causal effects, though, and we may be interested in estimated various averages of those causal effects.  Local average treatment effects (LATEs) are one such average.

For concreteness, let’s suppose the government decides to lend a hand to empirical researchers by implementing the following goofy policy: a randomly selected group of high school kids are randomized to get an offer of either $0 or $5,000 to acquire a college degree.  We wish to use this natural experiment to estimate “the” effect of getting a college degree on, say, wages.  We collect data on all these folks comprised of: a dummy variable Z_i which equals one if person i was offered $5,000 and zero if they were offered zero, a dummy variable D_i which indicates the student actually received a college degree, and wages, y_i.

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The Guardian newspaper has issued a series of articles about academic economics in the past few weeks. They include Mainstream economics is in denial: the world has changed, Economics students need to be taught more than neoclassical theory, and Orthodox economists have failed their own market test. I limit comments here to that last piece, by Seumas Milne, as Mr. Milne seems most intent on pegging the economics critic crankometer, but Mr. Milne’s themes are repeated in the other articles.

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Canada’s Globe and Mail newspaper has been running a series of articles on income inequality. This post presents some comments on the coverage of income inequality and health in Wealth begets health: Why universal medical care only goes so far by André Picard.

I make three points. First, that the article is much more consistent with the literature if one reads “poverty” every time the article uses the word “inequality.” Second, that the fact that income and health are correlated across people or across regions does not tell us that income causes health. And finally, that the research does suggest that decreasing poverty will increase health, but that we should not expect substantial reductions in health care expenditures as a result. I close with some notes on policy implications.

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Much has been made of a recent Gallup poll showing a majority of Americans now support marijuana legalization. But if a majority support legalization, why do politicians seem so reluctant to support drug law reform?

One explanation for this puzzle is that Americans who vote are less likely to support legalization than those who do not vote. Voters tend to be older, and possibly have other characteristics which are associated with opposition to drug policy reform.

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This post breaks down academic job openings for economists over the last five years by field. As reflected by job openings, what do economists study, and which fields have been “hot” over this time window?

My motivation for digging into these data is in part the response to my list of 18 symptoms of bad economics criticism. Paul Krugman and John Quiggin claimed that macro actually does dominate economics, although it’s not clear either of them actually disagrees with symptom #1 of bad criticism—the notion that economics as discipline is useless if we can’t forecast future states of the macroeconomy.

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Every mainstream science which touches on political or religious ideology attracts more than its fair share of deniers: the anti-vaccine crowd v mainstream medicine, GMO fearmongers v geneticists, creationists v biologists, global warming deniers v climatologists. Economics is no different, but economics cranks differ in that they typically make false claims about the content of economics itself, as opposed, or as a prelude, to false claims about the way the world works. That target sometimes making it hard for non-economists to differentiate crankery from solid criticism.
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Here, then, are some symptoms of bad critiques of economics:

  1. Treats macroeconomic forecasting as the major or only goal of economic analysis.
  2. Frames critique in terms of politics, most commonly the claim that economists are market fundamentalists.
  3. Uses “neoclassical” as if it refers to a political philosophy, set of policy prescriptions, or actual economies. Bonus: spells it “neo-classical” or “Neo-classical.”
  4. Refers to “the” neoclassical model or otherwise suggests all of economic thought is contained in Walras (1874).
  5. Uses “neoclassical economics” and “mainstream economics” interchangeably. Bonus: uses “neoliberal economics” interchangeably with either.
  6. Uses the word “neoliberal” for any reason.
  7. Refers to “corporate masters” or otherwise implies economists are shills for the wealthy or corporations.
  8. Claims economists think people are always rational.
  9. Claims financial crisis disproved mainstream economics.
  10. Explicitly claims that economics is not empirical, or does so implicitly by ignoring empirical economics.
  11. Treats all of economics as if it’s battling schools of macroeconomics.
  12. Misconstrues jargon: “rational.”
  13. Misconstrues jargon: “efficient” (financial sense) or “efficient” (Pareto sense).
  14. Misconstrues jargon: “externality“.
  15. Claims economists only care about money.
  16. Claims economists ignore the environment. Variant: claims economics falters on point that “infinite growth on a finite planet is impossible.”
  17. Goes out of its way to point out that the Economics Nobel is not a real Nobel.
  18. Cites Debunking Economics.
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