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Reduced-Form Versus Structural Modeling in Environmental and Resource Economics

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  • Christopher Timmins
  • Wolfram Schlenker

    ()
    (Department of Economics, Duke University, Durham, North Carolina 27708
    School of International and Public Affairs, Department of Economics, Columbia University, New York, New York 10027)

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    Abstract

    We contrast structural and reduced form empirical studies in environmental and resource economics. Both methodologies have their own context-specific advantages and disadvantages, and should be viewed as complements, not substitutes. Structural models typically require a theoretical model and explicit assumptions about structural errors in order to recover the parameters of behavioral functions. These estimates may be required to measure general equilibrium welfare effects or to simulate intricate feedback loops between natural and economic processes. However, many of the assumptions used to recover structural estimates are untestable. The goal of reduced form studies is, conversely, to recover key parameters of interest using exogenous within-sample variation with as few structural assumptions as possible—reducing reliance on these assumptions assists in establishing causality in the relationship of interest. Reduced-form studies do, however, require assumptions of their own, e.g., the (quasi) randomness of an experiment with no spillover effects on the control group.

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    File URL: http://www.annualreviews.org/doi/abs/10.1146/annurev.resource.050708.144119
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    Bibliographic Info

    Article provided by Annual Reviews in its journal Annual Review of Resource Economics.

    Volume (Year): 1 (2009)
    Issue (Month): 1 (09)
    Pages: 351-380

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    Handle: RePEc:anr:reseco:v:1:y:2009:p:351-380

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    Related research

    Keywords: structural modeling; Tiebout sorting; hedonics; bioeconomic systems; general equilibrium; functional form; causality; identification; randomization; quasi-experiments;

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    Cited by:
    1. Zhang, Wendong, 2013. "From Farmer Management Decisions to Watershed Environmental Quality: A Spatial Economic Model of Land Management Choices," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 150729, Agricultural and Applied Economics Association.
    2. Michael Brady & Elena Irwin, 2011. "Accounting for Spatial Effects in Economic Models of Land Use: Recent Developments and Challenges Ahead," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 48(3), pages 487-509, March.
    3. Sexton, Steven E. & Sexton, Alison L., 2014. "Conspicuous conservation: The Prius halo and willingness to pay for environmental bona fides," Journal of Environmental Economics and Management, Elsevier, vol. 67(3), pages 303-317.

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