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Non-Random Exposure to Exogenous Shocks: Theory and Applications

Kirill Borusyak () and Peter Hull ()

No 27845, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We develop new tools for 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 and transportation networks, simulated instruments for policy eligibility, and shift-share instruments. 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 non-randomness in shock exposure: the average treatment (or instrument) across such counterfactuals. We further show how to use shock counterfactuals for valid finite-sample inference, and characterize the valid instruments that are asymptotically efficient. We apply this framework to address bias when estimating employment effects of market access growth from Chinese high-speed rail construction, and to boost power when estimating coverage effects of expanded Medicaid eligibility.

JEL-codes: C21 C26 F14 I13 R40 (search for similar items in EconPapers)
Date: 2020-09
New Economics Papers: this item is included in nep-ecm, nep-ias and nep-lab
Note: HC ITI LS
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