The LATE estimator — a critique (wonkish)

24 Oct, 2021 at 11:58 | Posted in Statistics & Econometrics | Comments Off on The LATE estimator — a critique (wonkish)

One of the reasons Guido Imbens and Joshua Angrist were given this year’s ‘Nobel prize’ in economics is their LATE estimator used in instrumental variables estimation of causal effects. Another prominent ‘Nobel prize’ winner in economics — Angus Deaton — is not overly impressed:

Without explicit prior consideration of the effect of the instrument choice on the parameter being estimated, such a procedure is effectively the opposite of standard statistical practice in which a parameter of interest is defined first, followed by an estimator that delivers that parameter. Instead, we have a procedure in which the choice of the instrument, which is guided by criteria designed for a situation in which there is no heterogeneity, is implicitly allowed to determine the parameter of interest. This goes beyond the old story of looking for an object where the light is strong enough to see; rather, we have at least some control over the light but choose to let it fall where it may and then proclaim that whatever it illuminates is what we were looking for all along …

Instrumental Variables Estimation (with Examples from Criminology) - ppt  video online downloadThe LATE may or may not be a parameter of interest to the World Bank or the Chinese government and, in general, there is no reason to suppose that it will be …

I find it hard to make any sense of the LATE. We are unlikely to learn much about the processes at work if we refuse to say anything about what determines (the effect ‘parameter’) θ; heterogeneity is not a technical problem calling for an econometric solution but a reflection of the fact that we have not started on our proper business, which is trying to understand what is going on. Of course, if we are as skeptical of the ability of economic theory to deliver useful models as are many applied economists today, the ability to avoid modeling can be seen as an advantage, though it should not be a surprise when such an approach delivers answers that are hard to interpret.

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