1 Regression Discontinuity Design

1. What are the preconditions for applying an RDD, and what tests can be implemented to
validate the RDD assumptions?

 There is a jump in the treatment effect around a certain threshold point.

 Treatment is triggered by an administrative rule.
 Units with a value above (below) a threshold are (more likely to be) treated
otherwise are (more likely to be) untreated.
 Units near c are comparable in terms of observables and unobservables.
 No manipulation assumption, individuals should not be able to perfectly
determine their value of Z.
 No other treatments or covariate should change abruptly at c
The following tests can be done to assess the manipulation.
Assess from a theoretical point of view if precise manipulation is possible
 Density tests, to see the density of individuals that are located close to the the
cutoff, the number of individuals around c should evolve in a continuous way
and not suddenly change at its crossing. And tests/checks in changes in
observable composition at c, examines whether the observable characteristics
of the study population change at a speci ic threshold.

2. Provide two speci ic policy examples, one for implementing a sharp and another for
implementing a fuzzy regression RDD estimation.

Sharp Regression Discontinuity Design (RDD) Example:

- Policy: Companies with a revenue just above a threshold of $1 million will bene it from
a tax exemption for corporate income tax.

Fuzzy Regression Discontinuity Design (RDD) Example:

- Policy: Selecting 50 companies with a revenue just above $1 million at random to

receive a tax exemption for corporate income tax. This introduces a probabilistic
element into the treatment assignment, creating a fuzzy design.

3. We saw that the fuzzy RDD can be estimated as a ratio between two sharp RDDs. Relate
the ratio to the IV estimator. What does the fuzzy RDD estimate under the monotonicity
assumption? What is a complier? Can we identify them in the data?

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The fuzzy RDD estimated as:

And the IV estimator calculated as:

Both estimations are similar since the variable Z, score in the RDD, can be regarded as an
instrumental variable. Moreover, the fuzzy estimator is using also a subset of the
population when we examine the observations close to c. So, the fuzzy RDD is also a
LATE design. However, RDD could be seen as a special case of LATE in which the
instrumental variable has speci ic characteristics, and the design holds under certain
assumptions. An important difference is that in the IV estimator the instrument cannot
affect Y directly, the only way it can affect Y is through D.

Assuming monotonicity, the fuzzy RDD estimator can be interpreted as the local average
treatment effect at c on compliers. Given that we are interested in estimating those
individuals that have changed from Y0 to Y1, the fuzzy RDD estimator identi ies ATE for
compliers. Always and never treated does not change of treatment status in the
counterfactuals.

What does the fuzzy RDD estimate under the monotonicity assumption?

Under the monotonicity assumption the RDD could estimate the compliers or de iers.
However, it is more meaningful to estimate the effect on the compliers.

ITT(Zi = c) = E[Yi |Zi = c +] − E[Yi |Zi = c −] ≈ ≈ E[Yi(1) ∗ COi − Yi(0) ∗ COi + Yi(0) ∗ DEi −
Yi(1) ∗ DEi |Zi = c]

Given this, we know the proportion of never taker and always taker and ergo for compliers.
However we can drop always takers and never takers given that we are interested in the
individuals that switch from Y0 to Y1.

What is a complier? Is an individual that responds positively to the instrument, if Z=1 then
is treated, if Z=0 then is not treated, the compliers switch from Y(0) to Y(1) due to the

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 treatment assignment. So the compliers are the group that re lect the ATE under the RD
design.

Can we identify them in the data? We can’t identify them in the data since we do not
distinguish if the individual in the case Di(1) = 1 is a complier or always taker. And for
Di(0) = 0, we do not know if is complier or never taker. However using the assumption
of monotonicity it can be estimated.