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Assumptions:
1. Conditional Independence
E [Y
d
| R, X] = E [Y
d
| X] , d = 0, 1
2. Common Support
0 < P [D = 1 | X] < 1a.s.
F
X|R
directly observable
E [Y
1
Y
0
| X] identied by matching-style approach
E [Y | X, D = 0] = E [Y
0
| X, D = 0]
= E [Y
0
| X]
E [Y | X, D = 1] = E [Y
1
| X, D = 1]
= E [Y
1
| X]
Testing the CIA
.
5
0
.
5
1
20 10 0 10 20
OBryant
Math 10
.
5
0
.
5
1
20 10 0 10 20
Latin School
Math 10
.
5
0
.
5
1
20 10 0 10 20
OBryant
English 10
.
5
0
.
5
1
20 10 0 10 20
Latin School
English 10
Figure 7: CIA test plot, 7th grade apps
Visual CIA Test: 9th Grade Applicants
.
5
0
.
5
1
20 10 0 10 20
OBryant
Math 10
.
5
0
.
5
1
20 10 0 10 20
Latin School
Math 10
.
5
0
.
5
1
20 10 0 10 20
OBryant
English 10
.
5
0
.
5
1
20 10 0 10 20
Latin School
English 10
Figure 8: CIA test plot, 9th grade apps
Estimation
0
E [Y
1
| X] = X
1
E [Y
1
Y
0
| 0 R c] = E [X | 0 R c]
(
1
0
)
Y (1 D)
1 (X)
| X
E [Y
1
| X] = E
YD
(X)
| X
E [Y
1
Y
0
| 0 R c] = E
Y [D (X)]
(X) [1 (X)]
(X)
Assumptions:
1. Generalized Conditional Independence
(Y
0
, Y
1
, W
0
, W
1
) R | X
2. Common Support
0 < P [D = 1 | X] < 1a.s.
3. Conditional Monotonicity
P [W
1
W
0
| X] = 1a.s.
4. Conditional First Stage
P [W
1
> W
0
| X] > 0a.s.
Identication and Estimation (contd)
Example:
Y
0
and Y
1
depend on ability, not measurement error
This forms the basis for the denition of a sharp sample for
each school