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Equilibrium Policy Experiments and the Evaluation of Social Programs

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  • Jeremy Lise
  • Shannon Seitz
  • Jeffrey Smith

Abstract

This paper makes three primary contributions. First, we demonstrate the usefulness of general equilibrium models as tools with which to draw policy implications for policies implemented in practice only as small-scale social experiments. Second, we illustrate the usefulness of social experiments as a tool to evaluate equilibrium models. In particular, we calibrate our model using only data on an experimental control group and from general data sets, and then use it to predict (in partial equilibrium) the outcomes experienced by an experimental treatment group. We find that it predicts these outcomes remarkably well. Third, we apply our methodology to the evaluation of the Canadian Self-Sufficiency Project (SSP), a policy providing generous financial incentives for Income Assistance (IA) recipients to obtain stable employment. This policy is similar to many other policies designed to 'make work pay' currently under debate or in place in the US, the UK and elsewhere. Our results reveal several important feedback effects associated with the SSP policy; taken together, these feedback effects reverse the cost-benefit conclusions implied by the partial equilibrium experimental evaluation.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10283.

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Date of creation: Feb 2004
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Handle: RePEc:nbr:nberwo:10283

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  1. A. Smith, Jeffrey & E. Todd, Petra, 2005. "Does matching overcome LaLonde's critique of nonexperimental estimators?," Journal of Econometrics, Elsevier, Elsevier, vol. 125(1-2), pages 305-353.
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  9. Bruno, VAN DER LINDEN, 2005. "Equilibrium Evaluation of Active Labor Market Programmes Enhancing Matching Effectiveness," Discussion Papers (ECON - Département des Sciences Economiques), Université catholique de Louvain, Département des Sciences Economiques 2005007, Université catholique de Louvain, Département des Sciences Economiques.
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  13. Jeremy Lise & Shannon Seitz & Jeffrey Smith, 2006. "Evaluating Search and Matching Models Using Experimental Data," Working Papers, Queen's University, Department of Economics 1074, Queen's University, Department of Economics.
  14. Garry F. Barrett & Michael I. Cragg, 1998. "An Untold Story: The Characteristics of Welfare Use in British Columbia," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 31(1), pages 165-188, February.
  15. Carl Davidson & Stephen A. Woodbury, . "The Displacement Effect of Reemployment Bonus Programs," Upjohn Working Papers and Journal Articles, W.E. Upjohn Institute for Employment Research cdsaw1993, W.E. Upjohn Institute for Employment Research.
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