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Counterfactual Sensitivity and Robustness

Christensen, Timothy; Connault, Benjamin; (2023) Counterfactual Sensitivity and Robustness. Econometrica , 91 (1) pp. 263-298. 10.3982/ECTA17232. Green open access

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Abstract

We propose a framework for analyzing the sensitivity of counterfactuals to parametric assumptions about the distribution of latent variables in structural models. In particular, we derive bounds on counterfactuals as the distribution of latent variables spans nonparametric neighborhoods of a given parametric specification while other “structural” features of the model are maintained. Our approach recasts the infinite-dimensional problem of optimizing the counterfactual with respect to the distribution of latent variables (subject to model constraints) as a finite-dimensional convex program. We also develop an MPEC version of our method to further simplify computation in models with endogenous parameters (e.g., value functions) defined by equilibrium constraints. We propose plug-in estimators of the bounds and two methods for inference. We also show that our bounds converge to the sharp nonparametric bounds on counterfactuals as the neighborhood size becomes large. To illustrate the broad applicability of our procedure, we present empirical applications to matching models with transferable utility and dynamic discrete choice models.

Type: Article
Title: Counterfactual Sensitivity and Robustness
Open access status: An open access version is available from UCL Discovery
DOI: 10.3982/ECTA17232
Publisher version: https://doi.org/10.3982/ECTA17232
Language: English
Additional information: This version is the version of record. For information on re-use, please refer to the publisher’s terms and conditions.
Keywords: Robustness, ambiguity, model uncertainty, misspecification, global sensitivity analysis
UCL classification: UCL
UCL > Provost and Vice Provost Offices > UCL SLASH
UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS
UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS > Dept of Economics
URI: https://discovery.ucl.ac.uk/id/eprint/10160441
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