October 2016

IZA DP No. 10320: The Devil is in the Tails: Regression Discontinuity Design with Measurement Error in the Assignment Variable

forthcoming in: Matias D. Cattaneo and Juan Carlos Escanciano (eds.): Advances in Econometrics, Vol. 38

Identification in a regression discontinuity (RD) design hinges on the discontinuity in the probability of treatment when a covariate (assignment variable) exceeds a known threshold. If the assignment variable is measured with error, however, the discontinuity in the first stage relationship between the probability of treatment and the observed mismeasured assignment variable may disappear. Therefore, the presence of measurement error in the assignment variable poses a challenge to treatment effect identification. This paper provides sufficient conditions for identification when only the mismeasured assignment variable, the treatment status and the outcome variable are observed. We prove identification separately for discrete and continuous assignment variables and study the properties of various estimation procedures. We illustrate the proposed methods in an empirical application, where we estimate Medicaid takeup and its crowdout effect on private health insurance coverage.