title: Dynamic Treatment Effects.
abstract: This paper develops robust models for estimating and interpreting treatment effects arising from both ordered and unordered multistage decision problems. Identification is secured through instrumental variables and/or conditional independence (matching) assumptions. We decompose treatment effects into direct effects and continuation values associated with moving to the next stage of a decision problem. Using our framework, we decompose the IV estimator, showing that IV generally does not estimate economically interpretable or policy relevant parameters in prototypical dynamic discrete choice models, unless policy variables are instruments. Continuation values are an empirically important component of estimated total treatment effects of education. We use our analysis to estimate the components of what LATE estimates in a dynamic discrete choice model.
authors.affiliation: University of Chicago, and the American Bar Foundation.
authors.forename: James J
authors.initials: JJ
authors.lastname: Heckman
authors.affiliation: University of Chicago.
authors.forename: John Eric
authors.initials: JE
authors.lastname: Humphries
authors.affiliation: Arizona State University.
authors.forename: Gregory
authors.initials: G
authors.lastname: Veramendi
keywords: choice theory; conditional independence; dynamic treatment effects; factor models; instrumental variables; marginal treatment effects; matching on mismeasured variables; ordered choice models; regret; unordered choice models