Poorly measured confounders are more useful on the left than on the right

Zhuan Pei, Jorn-Steffen Pischke and Hannes Schwandt

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: Researchers frequently test identifying assumptions in regression based research designs (which include instrumental variables or difference-in-differences models) by adding additional control variables on the right hand side of the regression. If such additions do not affect the coefficient of interest (much) a study is presumed to be reliable. We caution that such invariance may result from the fact that the observed variables used in such robustness checks are often poor measures of the potential underlying confounders. In this case, a more powerful test of the identifying assumption is to put the variable on the left hand side of the candidate regression. We provide derivations for the estimators and test statistics involved, as well as power calculations, which can help applied researchers interpret their findings. We illustrate these results in the context of estimating the returns to schooling.

Keywords: Balancing; variable addition; robustness checks; specification testing; Hausman test (search for similar items in EconPapers)
JEL-codes: C31 C52 (search for similar items in EconPapers)
Date: 2018-04-30
References: View complete reference list from CitEc
Citations: View citations in EconPapers (39)

Published in Journal of Business and Economic Statistics, 30, April, 2018. ISSN: 0735-0015

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http://eprints.lse.ac.uk/88352/ Open access version. (application/pdf)

Related works:
Journal Article: Poorly Measured Confounders are More Useful on the Left than on the Right (2019)
Working Paper: Poorly measured confounders are more useful on the left than on the right (2018)
Working Paper: Poorly measured confounders are more useful on the left than on the right (2018)
Working Paper: Poorly Measured Confounders Are More Useful on the Left Than on the Right (2017)
Working Paper: Poorly Measured Confounders are More Useful on the Left Than on the Right (2017)
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