Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/149779
Authors: 
Canay, Ivan A.
Kamat, Vishal
Year of Publication: 
2016
Series/Report no.: 
cemmap working paper, Centre for Microdata Methods and Practice CWP33/16
Abstract: 
In the regression discontinuity design, it is common practice to asses the credibility of the design by testing whether the means of baseline covariates do not change at the cutoff (or threshold) of the running variable. This practice is partly motivated by the stronger implication derived by Lee (2008), who showed that under certain conditions the distribution of baseline covariates in the RDD must be continuous at the cutoff. We propose a permutation test based on the so-called induced ordered statistics for the null hypothesis of continuity of the distribution of baseline covariates at the cutoff; and introduce a novel asymptotic framework to analyze its properties. The asymptotic framework is intended to approximate a small sample phenomenon: even though the total number n of observations may be large, the number of effective observations local to the cutoff is often small. Thus, while traditional asymptotics in RDD require a growing number of observations local to the cutoff as → ∞ , our framework keeps the number q of observations local to the cutoff fixed as n→ ∞. The new test is easy to implement, asymptotically valid under weak conditions, exhibits finite sample validity under stronger conditions than those needed for its asymptotic validity, and has favorable power properties relative to tests based on means. In a simulation study, we find that the new test controls size remarkably well across designs. We then use our test to evaluate the validity of the design in Lee (2008), a well-known application of the RDD to study incumbency advantage.
Subjects: 
Regression discontinuity design
permutation tests
randomization tests
induced ordered statistics
rank tests
JEL: 
C12
C14
Document Type: 
Working Paper

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