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Estimating distributions of potential outcomes using local instrumental variables with an application to changes in college enrollment and wage inequality

Carneiro, P.; Lee, S.; (2009) Estimating distributions of potential outcomes using local instrumental variables with an application to changes in college enrollment and wage inequality. Journal of Econometrics , 149 (2) pp. 191-208. 10.1016/j.jeconom.2009.01.011. Green open access

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Abstract

This paper extends the method of local instrumental variables developed by Heckman and Vytlacil [Heckman, J., Vytlacil E., 2005. Structural equations, treatment, effects and econometric policy evaluation. Econometrica 73(3), 669–738] to the estimation of not only means, but also distributions of potential outcomes. The newly developed method is illustrated by applying it to changes in college enrollment and wage inequality using data from the National Longitudinal Survey of Youth of 1979. Increases in college enrollment cause changes in the distribution of ability among college and high school graduates. This paper estimates a semiparametric selection model of schooling and wages to show that, for fixed skill prices, a 14% increase in college participation (analogous to the increase observed in the 1980s), reduces the college premium by 12% and increases the 90–10 percentile ratio among college graduates by 2%.

Type: Article
Title: Estimating distributions of potential outcomes using local instrumental variables with an application to changes in college enrollment and wage inequality
Open access status: An open access version is available from UCL Discovery
DOI: 10.1016/j.jeconom.2009.01.011
Publisher version: http://dx.doi.org/10.1016/j.jeconom.2009.01.011
Language: English
UCL classification: UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS > Dept of Economics
URI: https://discovery.ucl.ac.uk/id/eprint/16157
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