Sufficient Statistics for Welfare Analysis: A Bridge Between Structural and Reduced-Form Methods / Raj Chetty.

Format:

Book

Author/Creator:

Chetty, Raj.

Contributor:

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w14399.

NBER working paper series no. w14399

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Sufficient Statistics for Welfare Analysis

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2008.

Summary:

The debate between "structural" and "reduced-form" approaches has generated substantial controversy in applied economics. This article reviews a recent literature in public economics that combines the advantages of reduced-form strategies -- transparent and credible identification -- with an important advantage of structural models -- the ability to make predictions about counterfactual outcomes and welfare. This recent work has developed formulas for the welfare consequences of various policies that are functions of high-level elasticities rather than deep primitives. These formulas provide theoretical guidance for the measurement of treatment effects using program evaluation methods. I present a general framework that shows how many policy questions can be answered by identifying a small set of sufficient statistics. I use this framework to synthesize the modern literature on taxation, social insurance, and behavioral welfare economics. Finally, I discuss topics in labor economics, industrial organization, and macroeconomics that can be tackled using the sufficient statistic approach.

Notes:

Print version record

October 2008.