Remark

Rus’an Nasrudin

December 14, 2021

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Outline

Standard error issues

Make sense your number (estimate)
Cost-effective analysis

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Standard errors and coefficient

In a causal inference work, what matter first is the estimate then the statistical
significance.
Now, let’s talk little bit about the statistical significance and of course the issue of standard
error.
There are two things to remember: when to use robust standard error and the clustered
one.

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Three variance estimators: OLS, robust, and robust cluster

OLS:
1 X 2
VOLS = ( ei ) ∗ (X 0 X)−1
N−k
Robust: X
Vrob = (X 0 X)−1 ∗ [ (ei ∗ xi )0 ] ∗ (ei ∗ xi ) ∗ (X 0 X)−1
Robust cluster X
Vcluster = (X 0 X)−1 ∗ u0j ∗ u j ∗ (X 0 X)−1
j

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Stata implementation
. reg logearn school

Source | SS df MS Number of obs = 2,014

-------------+---------------------------------- F(1, 2012) = 479.25
Model | 259.458632 1 259.458632 Prob > F = 0.0000
Residual | 1089.2706 2,012 .541386978 R-squared = 0.1924
-------------+---------------------------------- Adj R-squared = 0.1920
Total | 1348.72923 2,013 .670009553 Root MSE = .73579

------------------------------------------------------------------------------
logearn | Coef. Std. Err. t P>|t| [95% Conf. Interval]
-------------+----------------------------------------------------------------
school | .1010255 .0046148 21.89 0.000 .0919752 .1100757
_cons | 4.746692 .0273505 173.55 0.000 4.693054 4.800331
------------------------------------------------------------------------------

.
end of do-file

. hettest

Breusch-Pagan / Cook-Weisberg test for heteroskedasticity

Ho: Constant variance
Variables: fitted values of logearn

chi2(1) = 11.99
Prob > chi2 = 0.0005

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Stata implementation

. reg logearn school, ro

Linear regression Number of obs = 2,014

F(1, 2012) = 521.68
Prob > F = 0.0000
R-squared = 0.1924
Root MSE = .73579

------------------------------------------------------------------------------
| Robust
logearn | Coef. Std. Err. t P>|t| [95% Conf. Interval]
-------------+----------------------------------------------------------------
school | .1010255 .0044231 22.84 0.000 .0923511 .1096998
_cons | 4.746692 .0280608 169.16 0.000 4.691661 4.801724
------------------------------------------------------------------------------

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Stata implementation

. reg logearn school, vce(cluster school)

Linear regression Number of obs = 2,014

F(1, 19) = 131.06
Prob > F = 0.0000
R-squared = 0.1924
Root MSE = .73579

(Std. Err. adjusted for 20 clusters in school)

------------------------------------------------------------------------------
| Robust
logearn | Coef. Std. Err. t P>|t| [95% Conf. Interval]
-------------+----------------------------------------------------------------
school | .1010255 .0088246 11.45 0.000 .0825554 .1194956
_cons | 4.746692 .0600509 79.04 0.000 4.621004 4.87238
------------------------------------------------------------------------------

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Make sense your number

1 Once you obtain your estimate, critically analyse, compare, and discuss your results
based on direction of bias.
2 Then, always compare your estimates with those from previous published studies to justify
your study’s results, to acknowledge limitations, or conflicts with other studies, if any.
3 Before drawing conclusions, carefully explore step 1 and 2.

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How to use your estimate’s number

Cost-effectiveness analysis: ratio of costs to effect on one outcome.

Cost-benefit analysis: ratio of costs to monetary value of effects on all outcomes.

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Cost-effectiveness analysis 1/3

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Cost-effectiveness analysis 2/3

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Cost-effectiveness analysis 3/3

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Some examples

Rus’an Nasrudin, Budy P. Resosudarmo, Satoshi Yamazaki and Wardis Girsang

Contribution of cash transfers in moderating household food insecurity in small-island
communities: Experimental evidence from Indonesia
Marine Policy. 118 (2020), 104025
Joppe de Ree, Karthik Muralidharan, Menno Pradhan, and Halsey Rogers
Double for Nothing? Experimental Evidence on an Unconditional Teacher Salary Increase
in Indonesia
The Quarterly Journal of Economics 133(2):993–1039

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