Regression Discontinuity Applications with Rounding Errors in the Running Variable
Version of Record online: 11 MAR 2014
Copyright © 2014 John Wiley & Sons, Ltd.
Journal of Applied Econometrics
Volume 30, Issue 3, pages 422–446, April/May 2015
How to Cite
2015), Regression Discontinuity Applications with Rounding Errors in the Running Variable. J. Appl. Econ., 30: 422–446. doi: 10.1002/jae.2369.(
- Issue online: 13 APR 2015
- Version of Record online: 11 MAR 2014
- Manuscript Revised: 2 AUG 2013
- Manuscript Received: 2 AUG 2012
Many empirical applications of regression discontinuity (RD) models use a running variable that is rounded and hence discrete, e.g. age in years, or birth weight in ounces. This paper shows that standard RD estimation using a rounded discrete running variable leads to inconsistent estimates of treatment effects, even when the true functional form relating the outcome and the running variable is known and is correctly specified. This paper provides simple formulas to correct for this discretization bias. The proposed approach does not require instrumental variables, but instead uses information regarding the distribution of rounding errors, which is easily obtained and often close to uniform. Bounds can be obtained without knowing the distribution of the rounding error. The proposed approach is applied to estimate the effect of Medicare on insurance coverage in the USA, and to investigate the retirement-consumption puzzle in China, utilizing the Chinese mandatory retirement policy. Copyright © 2014 John Wiley & Sons, Ltd.