Structural models for policy-making* Coping with parametric uncertainty

Philipp Eisenhauer (Bonn University)

14 septembre 2021, 15h30–17h00

Salle Auditorium 4

Econometrics and Empirical Economics Seminar


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, in uential, and empirically-grounded test case. We document considerable uncertainty in the models's policy predictions and highlight the resulting policy recommendations obtained from using dierent formal rules of decision-making under uncertainty.

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