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  5. Estimating Group Effects Using Averages of Observables to Control for Sorting on Unobservables: School and Neighborhood Effects

American Economic Review

ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)

Estimating Group Effects Using Averages of Observables to Control for Sorting on Unobservables: School and Neighborhood Effects

  • Joseph G. Altonji
  • Richard K. Mansfield
American Economic Review
vol. 108, no. 10, October 2018
(pp. 2902–46)
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Abstract

We consider the classic problem of estimating group treatment effects when individuals sort based on observed and unobserved characteristics. Using a standard choice model, we show that controlling for group averages of observed individual characteristics potentially absorbs all the across-group variation in unobservable individual characteristics. We use this insight to bound the treatment effect variance of school systems and associated neighborhoods for various outcomes. Across multiple datasets, we find that a 90th versus 10th percentile school/neighborhood increases the high school graduation probability and college enrollment probability by at least 0.04 and 0.11 and permanent wages by 13.7 percent.

Citation

Altonji, Joseph G., and Richard K. Mansfield. 2018. "Estimating Group Effects Using Averages of Observables to Control for Sorting on Unobservables: School and Neighborhood Effects." American Economic Review 108 (10): 2902–46. DOI: 10.1257/aer.20141708

Additional Materials

JEL Classification

  • C51 Model Construction and Estimation
  • H75 State and Local Government: Health; Education; Welfare; Public Pensions
  • I21 Analysis of Education
  • I26 Returns to Education
  • J24 Human Capital; Skills; Occupational Choice; Labor Productivity
  • J31 Wage Level and Structure; Wage Differentials
  • R23 Urban, Rural, Regional, Real Estate, and Transportation Economics: Regional Migration; Regional Labor Markets; Population; Neighborhood Characteristics