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Christian M Dahl, Martin Huber, Giovanni Mellace, It is never too LATE: a new look at local average treatment effects with or without defiers, The Econometrics Journal, Volume 26, Issue 3, September 2023, Pages 378–404, https://doi.org/10.1093/ectj/utad013
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Summary
In heterogeneous treatment effect models with endogeneity, identification of the local average treatment effect (LATE) typically relies on the availability of an exogenous instrument monotonically related to treatment participation. First, we demonstrate that a strictly weaker local monotonicity condition—invoked for specific potential outcome values rather than globally—identifies the LATEs on compliers and defiers. Second, we show that our identification results apply to subsets of compliers and defiers when imposing an even weaker local compliers-defiers assumption that allows for both types at any potential outcome value. We propose estimators that are potentially more efficient than two-stage least squares (2SLS) in finite samples, even in cases where 2SLS is consistent. Finally, we provide an empirical application to estimating returns to education using the quarter of birth instrument.
