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st: interpreting treatment effect model results

From   John Phillips <>
Subject   st: interpreting treatment effect model results
Date   Thu, 17 Oct 2002 12:31:54 -0400


I need help interpreting the results of estimating a treatment effects model
in which

Outcome equation:  y = a + b1X1 + b2X2 + dT + gL + e

where T is the treatment and L is selectivity correction variable that is
produced via probit estimation of the following model:

T = 1 if T* > 0

T* = m + N1X1 + N2X2 + u.

I have two questions.

1.  I find that d is significantly negative and g is significantly positive.
What is the economic interpretation of this result?  My understanding is
that d estimates the average treatment effect of T on y and that a t-test of
g is interpreted as a test of exogeneity, which can be rejected when g is
significant.  Does a positive g tell me anything else?

2.  X1 appears in both the outcome and selection equations.   What is the
interpretation of b1, the coefficient on X1, in the outcome equation?   From
Greene (5th edition, p.783), the interpretation in a more general sample
selection setting is that b1 captures the marginal effect of a change in X1
on y only in addition to the effect that the change in X1 has on the
likelihood that T* > 0.  Does that interpretation hold in my setting?



John Phillips
Department of Accounting
School of Business
University of Connecticut
2100 Hillside Road, Unit 1041
Storrs, CT 06269-1041
Telephone: 860/486-2789
Fax: 860/486-4838

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