Propensity-Score Matching (Psm). The Propensity Score Matching

1549 WordsApr 20, 20177 Pages
Propensity-Score Matching (PSM) The propensity score matching model is a method used to evaluate the average effect of a programme on participants’ outcome, conditional on the pre-participation characteristics of such participants (Bryson, Dorsett, & Purdon, 2002). The PSM technique has been applied widely in a variety of fields in the program evaluation (Heinrich et al., 2010).The model is appropriate for addressing the problem of selection bias (Wooldridge, 2002) in determining the difference between the participant’s outcome with (in this case adoption of weather index insurance) and without (non-adoption of the weather index insurance) programme (Pufahl & Weiss, 2008). Pufahl & Weiss also note that participants and non-participants…show more content…
Instrumental variables and design approach, though suitable raises difficulties in finding a suitable instrument because, in identifying the treatment effect, one needs at least one regressor which determines participation, but is not itself determined by the factors which affect outcomes (Blundell & Costa Dias, 2000; J. J. Heckman, 1995). The regression discontinuity method on the other hand needs a large number of farmers next to the discontinuity to draw meaningful decision. However, this is difficult because the further one moves from the discontinuity line the more the variable characteristics vary (Winters et al., 2010). PSM assumes that farmers who receive treatment and those who do not, differ not only in treatment, but also in characteristics that affect participation and the outcome (Heinrich et al., 2010). It thus seeks untreated (in our case non-adopters of weather index) farmers who have the same characteristics of the treated (adopters of weather index) farmers and matching them using propensity scores and thus creating a quasi-experiment (Winters et al., 2010). The propensity score was therefore used to estimate the probability of receiving treatment (adoption of

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