Exogenous Treatment and Endogenous Factors: Vanishing of Omitted Variable Bias on the Interaction Term

12 Pages Posted: 28 Jan 2012

See all articles by Olena Y. Nizalova

Olena Y. Nizalova

Kyiv School of Economics; IZA Institute of Labor Economics

Irina Murtazashvili

Drexel University - Department of Economics & International Business

Abstract

Whether interested in the differential impact of a particular factor in various institutional settings or in the heterogeneous effect of policy or random experiment, the empirical researcher confronts a problem if the factor of interest is correlated with an omitted variable. This paper considers circumstances under which the estimate of the mentioned effect is consistent. We find that if the source of heterogeneity and omitted variable are jointly independent of policy or treatment, then the OLS estimate on the interaction term between the treatment and endogenous factor turns out to be consistent.

Keywords: treatment effect, heterogeneity, policy evaluation, random experiments, omitted variable bias

JEL Classification: C21, C93

Suggested Citation

Nizalova, Olena Y. and Murtazashvili, Irina, Exogenous Treatment and Endogenous Factors: Vanishing of Omitted Variable Bias on the Interaction Term. IZA Discussion Paper No. 6282, Available at SSRN: https://ssrn.com/abstract=1994345 or http://dx.doi.org/10.2139/ssrn.1994345

Olena Y. Nizalova (Contact Author)

Kyiv School of Economics ( email )

13 Yakira Str
Kyiv, 04119
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IZA Institute of Labor Economics ( email )

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Germany

Irina Murtazashvili

Drexel University - Department of Economics & International Business ( email )

3141 Chestnut St.
Philadelphia, PA 19104
United States

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