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Structural models for policy-making: Coping with parametric uncertainty
- Publication Year :
- 2021
-
Abstract
- The ex-ante evaluation of policies using structural econometric models is based on estimated parameters as a stand-in for the true parameters. This practice ignores uncertainty in the counterfactual policy predictions of the model. We develop a generic approach that deals with parametric uncertainty using uncertainty sets and frames model-informed policy-making as a decision problem under uncertainty. The seminal human capital investment model by Keane and Wolpin (1997) provides a well-known, influential, and empirically-grounded test case. We document considerable uncertainty in the models's policy predictions and highlight the resulting policy recommendations obtained from using different formal rules of decision-making under uncertainty.
- Subjects :
- Economics - Econometrics
Subjects
Details
- Database :
- arXiv
- Publication Type :
- Report
- Accession number :
- edsarx.2103.01115
- Document Type :
- Working Paper