Regression Discontinuity

1. Basic RD equation:

Where x is the continuous assignment variable that determined the treatment and D is the binary treatment
variable that “turns on” when x crosses some threshold c. RD analysis essentially uses individuals with
x’s just below the cutoff c as a control group for those with x’s just above the cutoff

2. The two main assumptions are

 Imprecise control over the treatment. This leads to a design where variation just around the
threshold is random. Individuals may have some influence over x and therefor D, but their
control cannot be deterministic.
 Continuity of the functions around the cutoff c. If there is a discontinuity in y around the
cutoff that is due to some factor other than the treatment, the estimate will inappropriately
attribute that discontinuity to the effect of the treatment.
3. RD analysis usually relies on a number of indirect methods to lend support to the above assumptions
 Document in detail the way the treatment is assigned and any potential for
manipulation/precise control
 Examine the distribution of x for “heaping” or bunching just above or below the cutoff
 Examine the distribution of other covariates for discontinuities at the cutoff
 Report results excluding and including other covariates. Including covariates should not
change the magnitude of the estimate of τ.
 Report results looking at estimates with differences in y as well as levels—again the
magnitude of the estimate of τ should not be affected.
 Estimate with a range of polynomial functions in x and D or with nonparametric estimates for
windows around c. See below.

4. RD analysis is essentially looking at differences in average y around the cutoff c. If the effect of x on
y is non-linear, misspecifying the functional form will lead to a biased estimated effect of the
treatment. Researchers therefore use flexible functions to estimate the effect of D. This will produce
more conservative estimates of τ as differences in average y are more likely to be absorbed by the
function form (for example, an inflection point is less likely to be attributed to a break in the
function.) One approach is to use a flexible polynomial function for x and D (interaction terms
included in that function). Researchers typically report results using several different functions to
show that results are robust to higher order terms.

A second method is to use non-parametric approaches that essentially produced smoothed estimates
of the function on either side of the cutoff. Researchers typically report results using various sizes of
the window around the cutoff (or bin) and different smoothing (kernel) estimators.

We have not discussed in this paper the issue of “fuzzy” regression discontinuity models, where the
cutoff is not sharp, but you should know that there are additional methods to deal with that treatment
design.
Blundell and Dias

“That's a general issue in causal inference: do you want a biased, assumption-laden estimate of the actual
quantity of interest, or a crisp randomized estimate of something that's vaguely related that you happen to
have an experiment (or natural experiment) on?” (Andrew Gelman)

Six Methods reviewed—weaknesses also listed here

1) Social experiment methods

 closest to a clinical trial—“theory free”
 experimental conditions not always met
o those who randomized in may decline, so usually measures an “intent to treat” rather
than actual treatment effect
o those randomized out may be discouraged and change behavior

2) Natural experiment methods

 exploit randomization created by a naturally occurring event
 DD methods
 Measures “average treatment effect of treatment on the treated”
 Critical assumptions are
o Common time effect across groups
o No systematic composition changes within groups

3) Discontinuity design (also called regression discontinuity)

 exploit natural discontinuities in the rules
 Measures a local average treatment effect, but a different one than the IV estimator
 Relies heavily on assumption of continuity

4) Matching methods
 Goal is to reproduce the treatment group among the non-treated
 Match observable characteristics
 Need clear understanding of the determinants of the assignment rule
 Data intensive

5) IV methods
 relies on explicit exclusion restrictions—something excluded from outcome equation but
which determines the assignment rule
 if treatment has heterogenous effects, will identify the average treatment effect only under
strong and implausible assumptions
 does identify a local treatment effect, although again not necessarily the same local effect as
RD approach
 6) Control function
 closest to a structural approach,
 directly models the assignment rule to control for selection/directly characterizes the problem
for individuals deciding on program participation
 uses full specification of assignment rule that contains an instrument to derive a control
function
 the control function is included in the outcome equation
 misspecifications of the control function (behavioral relationship) will lead to biased
estimates
 this type of model is closely related to Heckman’s selectivity estimator we discussed earlier

Blundell and Dias describe several different estimators of the effect of a “treatment”: the
population average treatment effect (ATE), the average assigned to treatment effect (ATT) or
“intent to treat” effect, the local average treatment effect (LATE), and the marginal treatment
effect (MTE). Explain what they mean by each of these. Which estimators identify which
treatment effects?

All of these are related to idea that policy may have heterogenous effects—see pg 569

Potential outcomes:

for treatment scenario

for control scenario represents the treatment effect for individual i

Above is unobserved. What do observe is

Note that this is very general

How is d (treatment status) assigned? Z are observable characteristics that determine treatment, v are
unobservable characteristics that determine treatment

ATE Average Treatment effect

Average effect in population if entire population were treated

ATT Average Assigned to treatment effect

  Individuals in an RCT don’t always participate even if assigned to treatment group. Individuals
in control group not given a placebo—may change behavior since were randomized out
 Because those who don’t sign up for treatment are different than those who do, include
everyone assigned to treatment—this is a random sample—then measure treatment effect in that
entire assigned group

LATE Local average treatment effect

 Treatment may have heterogenous effects depending on value of X. Local average means that
treatment effect is specific to the group in the “local” area of the variation. For example, in an IV
estimate, it estimates the effect of treatment on the outcome for individuals whose “treatment” is
sensitive to changes in the instrument (e.g., if the “treatment” is college attendance and the
outcome is wages and the instrument is distance to college, the IV estimate measures the effect of
college attendance on income for individuals whose education decisions are sensitive to how far
they live from college) In an RD design, the local effect is the effect on individuals whose
assignment variable is close to the cutoff.

MTE Marginal treatment effect. The effect of marginal changes in the treatment. Again, this will be
different from the average treatment effect if treatment effects are not constant across the population