Analyzing natural experiments are basically the same thing
as analyzing randomized experiments.
Once you have, the as if randomization assumption, so we're gonna
go through two examples to talk about where these assumptions come from
and how you check them. The first one we'll look at is the effect
of having property rights on your behavior.
More specifically, suppose we took squatters who're living on land
that they don't own,
and then we give then rights to the land, what's gonna happen?
Well,some economists looked at this in a paper from 2004 and they argue that
under the security provided by proper legal land titles, saying that they actually
own the land, the people on the land are gonna do things like invest
in improvements in water distribution,okay? They're gonna do invest
in sewage control, treatment of fecal matter, garbage disposal,
safety
Garbage disposal,safety,how good the heating system is,air ventilation,
quality of the soil etc, etc etc.
Basically the idea is they own the land so they have a reason and
incentive to invest in improving it.
And those investments might affect the quality of life for their
kids and so it may affect how healthy their kids are. And so therefore,
there may be this pathway from having property rights to having
healthy children.
So that's what these guys are gonna look at in this paper.
And they're gonna use Analyzing Natural Experiment to do it.
So here's what they found.
Well, they came across this very unique situation that happened
in Argentina In 1981.
So in 1981 about 1800 families were living in about 2 square kilometers
of waste land outside of Buenos Aires in Argentina. Now these arguments
were basically landless citizens organized by the catholic church
and they purposely wanted to avoid creating a shanty town
so they partitioned the land into small urban shaped parcels, and
at the beginning of this occupation they thought the church and
all the people who live there thought that the land was owned by
the state,okay?
So that's where they were living, and I'm paraphrasing for the paper
here by the way. So what actually happened well, three years later
they discovered that the land they were living on actually wasn't
owned by the government it was actually owned by private citizens,so
three years later the government said we're gonna just take that
land from the private citizens and give it to the squatters Now
some of the previous citizens who owned this land said okay, that's
fine, they accepted compensation, some money in exchange for their
land,but some of the people who used to own this land they said
no, I don't think so you're not taking my land and they fought the
government in court, so basically what happened was 1800
families were split into two groups, the first group was able to
obtain property rights to the land they lived on because they lived
on land where the owner didn't fight the government. The other families
did not get property rights because they lived on land where the
owner chose To fight the government, okay, so if we believe that
this is an as if random split of families into these two groups
then all we have to do is compare outcomes of the groups, the people
who got property rights with the outcomes of the people who didn't
get property rights in order to learn about the causal effect of
having property Rights to your land on things like your children's
health. Okay so now how do we justify this as a randomization assumption,
well they are basically going to do two things, first they are going
to do balance check, they're gonna first look at the pre treatment
variables of the squatters, the people who lived on the land
The people who lived on the land.They gonna at their age, sex, citizenship
and education, and they're gonna argue that these variables are
balanced across treatment and control.
So it's not like the treatment group the people got property rights
are much much older than the people who didn't get property rights
for example.
They're also Gonna look at the observed pre treatment variables
of the parcels, the actual pieces of land that they lived on, these
are the distance from the parcel to[UNKNOWN]creek,okay?The size of
the parcel,the distance from this parcel to a non squatter area
[UNKNOWN] areas and they're gonna They gonna say, well this variables are also
balanced across the treatment and the control group.
So It's not like the groups that had, that didn't get property rights
for example were very far from the city or very close to polluted
creeks while the land that did get property rights were close to
the city and far from polluted creeks, okay that's not true
it's actually they're roughly equal this time on average, Okay?
So this is exactly what we would see if we had true randomization.
Now the problem is, we can't check balance for variables we don't
observe.
If we had true randomization, then we would be guaranteed that all
variables whether they're observed or unobserved Are balanced but with as
if randomization, we can never really know if the unobserved variables
are balanced or not.
But it's still a good check to make sure that we do see balance
at what we do observe.
So that's the first piece of evidence they give.
The second piece is they give an enormous amount of qualitative
evidence.
So, first They argue that the squatters didn't even know that the
land was privately owned when they were settling so it's not like
they could have picked and choose which land they wanted to live
on.
They didn't notice some land would have ended up with property rights
and some land wouldn't.
Suppose they did, okay, why would that be a problem.
Well then maybe the
The slightly more educated, the higher ability, more persuasive,
squatters could have managed to get their way onto the land that
was gonna get property rights.
Whereas the sort of less persuasive, less influential squatters
were stuck with the land that wasn't gonna get property rights.
Okay,that would create an unbalance across these two treatment
groups, they'd be introduced to possible confounders,okay and so
comparing the outcomes between these two groups could be chocked
up to this difference, and persuasiveness, or influentialness of
the squatters and not to the actual treatment effect, the fact that
some people actually had property rights and others didn't ,okay?
So would they say that's not the case because nobody knew that this
land was not owned by the government when it was settled.
So second, they also do a tone of interviews and other qualitative
field work.
And summarizing all of these, they'd interview people on the land,
interview owners,
why did some owners decide to fight the government, why didn't they?
They basically argue that just the reason
that some owners decided to fight the government others didn't was
just reducing [INAUDIBLE_AUDIO] that is unrelated to say how valuable
the land was.
It would be really really bad for the authors if the owners who
fought the government were also the owners who had the most valuable
land for some reason, that would be bad because then, that would
be another confounder another thing that is not balanced across
the treatment and control group.
And we wouldn't know if we compared outcomes of these two groups,
we wouldn't know if differences in outcomes is due to the property
rights or different or because this land is more valuable on average
in the treatment group than in the control.
But they argue that that's not the case.
That it's just reducing [INAUDIBLE] basically random.
So that's what they do is to justify their assumption and then
they are gonna move on in the next few models we'll look at what
effects they actually found
And one lesson to take away from this paper is that it's really
important to get a good qualitative understanding of the context,
in order to justify your as if assumptions.
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