New IZA Working Paper

IZA Discussion Paper No. 10108
July 2016

ABSTRACT

Viewpoint: Estimating the Causal Effects of Policies and Programs

Estimation, inference and interpretation of the causal effects of programs and policies have all advanced dramatically over the past 25 years. We highlight three particularly important intellectual trends: an improved appreciation of the substantive importance of heterogeneous responses and of their methodological implications, a stronger focus on internal validity brought about by the “credibility revolution,” and the scientific value that follows from grounding estimation and interpretation in economic theory. We discuss a menu of commonly employed partial equilibrium approaches to the identification of causal effects, emphasizing that the researcher’s central intellectual contribution always consists of making an explicit case for a specific causal interpretation given the relevant economic theory, the data, the institutional context and the economic question of interest. We also touch on the importance of general equilibrium effects and full cost-benefit analyses.

JEL Classification: C18, C21, C26, C50, C90

Keywords: causal effects, heterogeneous treatment effects, partial equilibrium identification

The paper is forthcoming (after a while) in the Canadian Journal of Economics.

You can find the working paper here.

ASAK

I like it when my students win awards. Even more marvelous, Sasha is now a tenured full professor at Harvard just five short years after earning her doctorate.

Assorted links

1. Applied monetary policy at the Houston public schools.

2. On neckties. In my view, they can't disappear fast enough.

3. Maybe you don't have the right to remain silent.

4. Demetra Nightengale on evidence-based policy at DOL. They have made some real improvements. It will not come as a surprise, of course that I think there is room for a lot more.

New NBER Working Paper

Tobacco Regulation and Cost-Benefit Analysis: How Should We Value Foregone Consumer Surplus?
Helen Levy, Edward C. Norton, Jeffrey A. Smith

NBER Working Paper No. 22471
Issued in July 2016
NBER Program(s):   HC   HE

Recent tobacco regulations proposed by the Food and Drug Administration have raised a thorny question: how should the cost-benefit analysis accompanying such policies value foregone consumer surplus associated with regulation-induced reductions in smoking? In a model with rational and fully informed consumers, this question is straightforward. There is disagreement, however, about whether consumers are rational and fully informed, and the literature offers little practical guidance about what approach the FDA should use if they are not. In this paper, we outline the history of the FDA’s recent attempts to regulate cigarettes and other tobacco products and how they have valued foregone consumer surplus in cost-benefit analyses. We discuss the evidence on whether consumers are fully informed about the risks of smoking and whether their choices are rational, reviewing the competing arguments made by different authors about these questions. We describe the appropriate approach to welfare analysis under different assumptions about consumer information and rationality. Based on our reading of the theoretical and empirical literatures, we advocate using a behavioral public finance framework borrowed from the literature on environmental regulation. This approach applies standard tools of welfare analysis while allowing consumer behavior to deviate from rationality and full information without requiring specific assumptions about the reason for the deviation. The use of this approach would substantially reduce the confusion currently surrounding welfare analysis of tobacco regulation.

The paper (gated) is here.

A brief meditation on travel

I like this commercial a lot. Donald Sutherland is the perfect voice.

Research cited in Forbes

The column is mainly about a fine paper by Andrews, Imberman and Lovenheim but also presents some evidence from my work with Nora Dillon.

Hat tip: Scott Imberman

Updated web page

I have updated the papers and courses part of my web page, as well as adding a link to my Google Scholar page.