Treatment Effects

Definition: Treatment effects are as follows: In the language of experiments, a treatment is something done to a person that might have an effect. In the absence of experiments, discerning the effect of a treatment like a college education or a job training program can be clouded by the fact that the person made the choice to be treated. The outcomes are a combined result of the person's propensity to choose the treatment, and the effects of the treatment itself. Measuring the treatment's effect while screening out the effects of the person's propensity to choose it is the classic treatment effects problem.

A standard way to do this is to regress the outcome on other predictors that do not vary with time, as well as whether the person took the treatment or not. An example is a regression of wages not only on years-of-education but also on test scores meant to measure abilities or motivation. Both years-of-education and test scores are positively correlated with subsequent wages, and when interpreting the findings the coefficient found on years of education has been partly cleansed of the factors predicting which people would have chosen to have more education.

A more advanced method is the Heckman two-step.

(Econterms)

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