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Re: st: interaction with non-random treatment

From   "Mark Schaffer" <>
Subject   Re: st: interaction with non-random treatment
Date   Fri, 12 Mar 2004 09:37:51 -0000


Subject:        	st: interaction with non-random treatment
Date sent:      	Fri, 12 Mar 2004 04:09:27 -0500
From:           	"Nain, Amrita" <>
To:             	<>
Send reply to:

> Hello all,
> Here's a question that's giving me a headache. I am estimating a
> model of firm value V, V= beta1 * X + beta2*T + beta3*T * Y + u
> where X are firm-level exogenous variables, T is a some treatment
> the firm is subjected to and Y is a continuous exogenous
> industry-level variable and u is the error term. Firms that
> receive treatment T are not a random sample of firms - factors
> that lead to a firm being given a treatment are correlated with
> firm value. In the absence of an interaction term of T withY, I
> would use the treatreg command in Stata to deal with the potential
> correlation between T and u. But how do I get consistent estimates
> of beta2 and beta3? Thank for helping. Amrita 

If your equation were

V= beta1 * X + beta2*T + u

and you had excluded variables correlated with T and not u, then you 
could use -treatreg- to estimation your equation *and* the T 
equation, i.e., you could estimate the system.  -treatreg- won't 
handle more than one treatment effect, though, so if you want to 
estimate your full system then you're stuck (unless some Stata user 
out there has written a program to do what you want).

But - if you are interested in only the V equation, then you can get 
consistent estimates of the parameters using -ivreg- (or our
-ivreg2-), assuming again that you have enough (valid and relevant) 
excluded variables.  The estimates won't be efficient, because you 
would be using a single-equation estimation method - for efficiency 
you would need to estimate the full system a la -treatreg- - but they 
will be consistent (again assuming the excluded instruments are valid 
and relevant).

Hope this helps.


Prof. Mark E. Schaffer
Centre for Economic Reform and Transformation
Department of Economics
School of Management & Languages
Heriot-Watt University, Edinburgh EH14 4AS  UK
44-131-451-3494 direct
44-131-451-3008 fax
44-131-451-3485 CERT administrator
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