Identification and Estimation of Treatment Effects in the Presence of Neighbourhood Interactions

WP 04/14; This paper presents a parametric counter-factual model identifying Average Treatment Effects (ATEs) by Conditional Mean Independence when externality (or neighbourhood) effects are incorporated within the traditional Rubin's potential outcome model. As such, it tries to generalize the usual control-function regression, widely used in program evaluation and epidemiology, when SUTVA (i.e. Stable Unit Treatment Value Assumption) is relaxed. As by-product, the paper presents also ntreatreg, an author-written Stata routine for estimating ATEs when social interaction may be present. Finally, an instructional application of the model and of its Stata implementation through two examples (the first on the effect of housing location on crime; the second on the effect of education on fertility), are showed and results compared with a no-interaction settin