Reduced Form Estimation Vs. Structural Modeling In Labor Economics

653 words - 3 pages

! Yuanyuan Liu Prof. Rust ECON 615: PartII October 30, 2012 Reduced-Form Estimation vs. Structural Modeling in Labor Economics

Liu 1

This analysis is to compare and contrast two labor papers presented at the IZA Young Professionals program at Georgetown University last week. They are Explaining Charter School Effectiveness by Angrist, Pathak and Walters and Matching, Sorting and Wages by Lise, Meghir and Robin. The first one uses a reduced-form approach to study the treatment effect of charter school attendance while the second one develops a structural search-matching model to study optimal labor market policies. As will be discussed below, these two papers ask very different ...view middle of the document...

On the school level, they find that over-subscribed charter schools with high-quality lottery records seem more effective than non-lottery schools, and they also find strong evidence supporting the effectiveness of No Excuse. The reduced form approach used in this paper is well-tailored for the purpose of the paper-investigating the effectiveness of one specific policy which was implemented through lottery and has a clear treatment effect interpretation. The charter school admission lotteries provide a random experiment for the study, and the authors can use the sample of lotteried applicants to investigate potential outcomes of compliers and counterfactuals. The choice of a reduced form treatment model is natural having a random sample (to some extent), and also intuitive based on the nature of the question, that is, the policy at question has clear impacts that can be quantified (student achievement), and outcomes on the treated are observed while potential outcomes on the counterfactual non-treated can be found through matching....

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