Estimating Marginal Treatment Effects under Unobserved Group Heterogeneity

Abstract: This paper studies treatment effect models in which individuals are classified into unobserved groups based on heterogeneous treatment rules. Using a finite mixture approach, we propose a marginal treatment effect (MTE) framework in which the treatment choice and outcome equations can be heterogeneous across groups. Under the availability of instrumental variables specific to each group, we show that the MTE for each group can be separately identified. Based on our identification result, we propose a two-step semiparametric procedure for estimating the group-wise MTE. We illustrate the usefulness of the proposed method with an application to economic returns to college education.