Impact Estimation Using

Propensity Score
Matching (PSM)
Moises Neil V. Seriño, PhD
Visayas Socio-Economic Research and Data Analytics Center
College of Management and Economics
Visayas State University
 Outline
1
When to use matching?

22 Basic Mechanics of Matching

33 The Curse of Dimensionality

44 Implementing the PSM

55 PSM Examples
 World Bank’s Impact
Evaluation in Practice

1. Randomization
2. Regression discontinuity
3. Instrumental variables
4. Difference-in-difference
5. Matching (Propensity score matching)
Matching
Matching
Perfect Matching
Perfect Matching
 When to use Propensity
Score Matching?
• Use observational studies not on
experimental

• When treatment/beneficiary assignment

was not randomized

• Use to reduce BIAS by matching similar

individuals from the treatment and control

• Large data sets, no baseline data

 Technically speaking,
IMPACT
• The impact of the program can now be
measured as the difference in outcome of
those control group with matched
characteristics with treated group

• This is also known as the Average

Treatment Effect on the Treated or ATT.
ATT = E(Y1i | Ti = 1) - E(Y0i | Ti = 1)
 Basic Steps in PSM
1. Data collection and preparation
(treatment and control)
2. Identify the indicators (focus on the
outcomes of interest)
3. Estimate the propensity score
(probability)
4. Match the treatment and control using
the propensity score
5. Compare using t-test
“Do not compare yourself
with others”

(it wont apply with PSM)

 Basic Mechanics of
Matching

• Consider the following very simple example

in which we want to calculate the ATT of a
treatment, T, on the income level, Y, of the
treated individuals.

• In this case X represents the education level.

 Example
Individual Treatment Education Income
(i) (T) (X) (Y)
1 0 2 60
2 0 3 80
3 0 5 90
4 0 12 200
5 1 5 100
6 1 3 80
7 1 4 90
8 1 2 70
Nearest neighbor matching
i T X Y Match Y1 Y0 δ
1 0 2 60 - - - -
2 0 3 80 - - - -
3 0 5 90 - - - -
4 0 12 200 - - - -
5 1 5 100 i=3 100 90 10
6 1 3 80 i=2 80 80 0
7 1 4 90 i = 2,3 90 85 5
8 1 2 70 i=1 70 60 10
 ATT (Impact)
i T X Y Match Y1 Y0 δ
5 1 5 100 i=3 100 90 10
6 1 3 80 i=2 80 80 0
7 1 4 90 i = 2,3 90 85 5
8 1 2 70 i=1 70 60 10

10 + 0 + 5 + 10
𝐴𝑇𝑇 =
4
25
𝐴𝑇𝑇 =
4
𝐴𝑇𝑇 = 6.25
Problems with PSM?

You can only match on observables!

 Curse of Dimensionality
• When X is a single variable, the
meaning of the word “similar” is clear.

• However, if we need to match

individuals in both income (I), years of
education (E), age (A) and gender (G)
then the vector X contains many
variables: X = (I, E, A, G).
 Curse of Dimensionality
• Suppose that we want to pair individual
A : X = (1000, 5, 34, M) with
B : X = (1100, 12, 26, M)
C : X = (2000, 8, 54, M)
Which of the two untreated individuals, B or
C, are closer to A?

• A solution is to calculate the propensity

score which is the probability of receiving
the treatment
 Propensity Score
• A propensity score is the probability
that a unit with certain characteristics
will be assigned to the treatment group
(as opposed to the control group)

• The scores are used to reduce

the selection bias in observational
studies by balancing the characteristics
of participants
 How to estimate the
propensity score?
Methods
• Logit
• Probit

Limited dependent variable

Use to predict the probability that an

individual will be part of the treated group
 Probability model

Linear Probability Logit / Probit

Model (OLS) Model

Program? Program?

1 1

0 0
X X

These models predict the probability of participation in

the program, i.e. the “propensity” of an individual
 Scoring to Matching
Strong Common Support
Scoring to Matching
 Scoring to Matching
Weak Common Support
 How to match?

Matching Algorithms

1. Nearest neighbor matching

2. Radius matching
3. Kernel matching
4. Mahalanobis distance
5. …and many many more
Nearest Neighbor
Kernel Based Matching
 Radius Matching

Score Treated Control

0.3 T C

C
0.5 T C

0.6 T C

0.7 T C
PSM Example
PSM Example
PSM Example: Mendola (2006)

• Treatment: Adoption of High Yielding Varieties

(HYVs) of rice
• Outcome:
1. Income
2. Poverty
• Data:
o 2562 households (HH) surveyed in 1994-
1995
o 8 villages: 4 treated (adopters), 4 untreated
(non-adopters)
PSM Example: Mendola (2006)
PSM Example: Mendola (2006)
PSM Example: Mendola (2006)
Propensity score estimation
PSM Example: Mendola (2006)
PSM Example: Mendola (2006)
PSM Example: Mendola (2006)
 Number of publications

100
120
140
160
180

20
40
60
80

0
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994

Year
1995
1996
1997
1998
1999
2000
2001
Publication with PSM

2002
2003
Publications in Pub Med with phrase "Propensity Score"

2004
2005
2006
 Questions?

Workshop on
Propensity Score Matching
Thank you very much