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

Pedro Carneiro and Sokbae (Simon) Lee

No CWP01/09, CeMMAP working papers from Centre for Microdata Methods and Practice, Institute for Fiscal Studies

Abstract: This paper extends the method of local instrumental variables developed by Heckman and Vytlacil (1999, 2001, 2005) 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%.

JEL-codes: C14 C31 J31 (search for similar items in EconPapers)
Date: 2009-01-22
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Citations: View citations in EconPapers (92)

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Journal Article: Estimating distributions of potential outcomes using local instrumental variables with an application to changes in college enrollment and wage inequality (2009)
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