Quantitative Economics with R by Vikram Dayal

Author:Vikram Dayal
Language: eng
Format: epub
ISBN: 9789811520358
Publisher: Springer Singapore

We will now carry out a simulation. We assume that , , and .

We generate the dataset Meds, which contains variables M, P, U_P.

Indiv

M

U_P

P

1

0

−0.51

9.49

2

1

2.49

9.49

3

1

1.01

8.01

4

0

0.29

10.29

5

1

−0.21

6.79

6

1

1.86

8.86

We see in the generated data that individual 1 is assigned to M 0, i.e. is in the control group. We observe that the value of P for person one, when assigned M 0 is 9.49. In the case of individual 2, the value of P for person two, when assigned M 1 is 9.49.

We denote the potential outcome for an individual in this case by where i indexes the individual and m is either 0 or 1, depending on the assigned value of M. Figure 10.3 shows how the structural causal graph is related to potential outcomes.

Here, and .

The causal effect for an individual is: .

Fig. 10.3Counterfactuals and potential outcomes. When the value of M is set to m, P has a potential outcome denoted by P(m)

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