Treatment Effects for Discrete Outcomes When Responses to Treatment Vary Among Observationally Identical Persons : An Application to Norwegian

This paper formulates an econometric framework for studying the impact of interventions on discrete outcomes when responses to treatment vary among observationally identical persons. Using a latent variable model that can be linked to well-posed economic models, we show how to define and interpret the average treatment effects, the average effect of treatment on the treated, the marginal treatment effect and the distribution of treatment effects for discrete outcomes. To estimate these parameters and the distribution of treatment effects, we formulate and estimate a discrete choice model with unobservables generated by a factor structure model. We apply our methods to evaluate the effect of Norwegian Vocational Rehabilitation training programs on employment outcomes for women. We find that applicants to these programs who participate in active training have a 4.6% higher employment rate than nonparticipants. When we control for the observable characteristics of applicants, we find that the average treatment effects falls to 4.1%. When we control for the unobservables characteristics of applicants, the average treatment effect falls to -1.4% and effect of treatment on the treated is -11%. We also find evidence of substantial heterogeneity in response to training