Nonrandom Exposure to Exogenous Shocks

Kirill Borusyak and Peter Hull

Econometrica, 2023, vol. 91, issue 6, 2155-2185

Abstract: We develop a new approach to estimating the causal effects of treatments or instruments that combine multiple sources of variation according to a known formula. Examples include treatments capturing spillovers in social or transportation networks and simulated instruments for policy eligibility. We show how exogenous shocks to some—but not all—determinants of such variables can be leveraged while avoiding omitted variables bias. Our solution involves specifying counterfactual shocks that may as well have been realized and adjusting for a summary measure of nonrandomness in shock exposure: the average treatment (or instrument) across shock counterfactuals. We use this approach to address bias when estimating employment effects of market access growth from Chinese high‐speed rail construction.

Date: 2023
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