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Taking the Dogma out of Econometrics: Structural Modeling and Credible Inference

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  • Aviv Nevo
  • Michael D. Whinston

Abstract

Without a doubt, there has been a "credibility revolution" in applied econometrics. One contributing development has been in the improvement and increased use in data analysis of "structural methods"; that is, the use of models based in economic theory. Structural modeling attempts to use data to identify the parameters of an underlying economic model, based on models of individual choice or aggregate relations derived from them. Structural estimation has a long tradition in economics, but better and larger data sets, more powerful computers, improved modeling methods, faster computational techniques, and new econometric methods such as those mentioned above have allowed researchers to make significant improvements. While Angrist and Pischke extol the successes of empirical work that estimates "treatment effects" based on actual or quasi-experiments, they are much less sanguine about structural analysis and hold industrial organization up as an example where "progress is less dramatic." Indeed, reading their article one comes away with the impression that there is only a single way to conduct credible empirical analysis. This seems to us a very narrow and dogmatic approach to empirical work; credible analysis can come in many guises, both structural and nonstructural, and for some questions structural analysis offers important advantages. In this comment, we address the criticism of structural analysis and its use in industrial organization, and consider why empirical analysis in industrial organization differs in such striking ways from that in fields such as labor, which have recently emphasized the methods favored by Angrist and Pischke.

Suggested Citation

  • Aviv Nevo & Michael D. Whinston, 2010. "Taking the Dogma out of Econometrics: Structural Modeling and Credible Inference," Journal of Economic Perspectives, American Economic Association, vol. 24(2), pages 69-82, Spring.
  • Handle: RePEc:aea:jecper:v:24:y:2010:i:2:p:69-82
    Note: DOI: 10.1257/jep.24.2.69
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    References listed on IDEAS

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    Cited by:

    1. Pinelopi K. Goldberg & Nina Pavcnik, 2016. "The Effects of Trade Policy," NBER Working Papers 21957, National Bureau of Economic Research, Inc.
    2. L. Aguzzoni & E. Argentesi & P. Buccirossi & L. Ciari & T. Duso & M. Tognoni & C. Vitale, 2013. "They Played the Merger Game: A Retrospective Analysis in the UK Videogames Market," Working Papers wp908, Dipartimento Scienze Economiche, Universita' di Bologna.
    3. Luca Aguzzoni & Elena Argentesi & Lorenzo Ciari & Tomaso Duso & Massimo Tognoni, 2016. "Ex post Merger Evaluation in the U.K. Retail Market for Books," Journal of Industrial Economics, Wiley Blackwell, vol. 64(1), pages 170-200, March.
    4. Liran Einav & Amy Finkelstein, 2017. "Moral Hazard in Health Insurance: What We Know and How We Know It," NBER Working Papers 24055, National Bureau of Economic Research, Inc.
    5. repec:bla:jindec:v:64:y:2016:i:4:p:683-709 is not listed on IDEAS
    6. James J. Heckman, 2010. "Building Bridges between Structural and Program Evaluation Approaches to Evaluating Policy," Journal of Economic Literature, American Economic Association, vol. 48(2), pages 356-398, June.
    7. Marie-Laure Allain & Claire Chambolle & Stéphane Turolla & Sofia Villas-Boas, 2013. "The Impact of Retail Mergers on Food Prices: Evidence from France," Working Papers hal-00920460, HAL.
    8. John Rust, 2014. "The Limits of Inference with Theory: A Review of Wolpin (2013)," Journal of Economic Literature, American Economic Association, vol. 52(3), pages 820-850, September.
    9. Marita Laukkanen & Céline Nauges, 2014. "Evaluating Greening Farm Policies: A Structural Model for Assessing Agri-environmental Subsidies," Land Economics, University of Wisconsin Press, vol. 90(3), pages 458-481.
    10. Albouy, David & Lue, Bert, 2015. "Driving to opportunity: Local rents, wages, commuting, and sub-metropolitan quality of life," Journal of Urban Economics, Elsevier, vol. 89(C), pages 74-92.
    11. Philip DeCicca & Donald S. Kenkel, 2015. "Synthesizing Econometric Evidence: The Case of Demand Elasticity Estimates," NBER Working Papers 20906, National Bureau of Economic Research, Inc.
    12. Humber, Jacob, 2014. "Mergers and Market Power in the US Nitrogen Fertilizer Industry," 2014 Annual Meeting, July 27-29, 2014, Minneapolis, Minnesota 170667, Agricultural and Applied Economics Association.
    13. Buettner, Thomas & Federico, Giulio & Lorincz, Szabolcs, 2016. "The Use of Quantitative Economic Techniques in EU Merger Control," MPRA Paper 76384, University Library of Munich, Germany.
    14. repec:bla:jindec:v:65:y:2017:i:3:p:469-509 is not listed on IDEAS
    15. repec:bla:stratm:v:38:y:2017:i:10:p:1964-1985 is not listed on IDEAS
    16. Edward D. Perry & GianCarlo Moschini & David A. Hennessy, 2016. "Testing for Complementarity: Glyphosate Tolerant Soybeans and Conservation Tillage," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 98(3), pages 765-784.
    17. Christopher T. Conlon & Julie Holland Mortimer, 2013. "An Experimental Approach to Merger Evaluation," NBER Working Papers 19703, National Bureau of Economic Research, Inc.
    18. Henk Folmer & Olof Johansson-Stenman, 2011. "Does Environmental Economics Produce Aeroplanes Without Engines? On the Need for an Environmental Social Science," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 48(3), pages 337-361, March.
    19. Huse, Cristian & Koptyug, Nikita, 2016. "Bailing on the car that wasn’t bailed out: bounding consumer reactions to financial distress," MPRA Paper 72796, University Library of Munich, Germany.
    20. Parag A. Pathak & Peng Shi, 2014. "Demand Modeling, Forecasting, and Counterfactuals, Part I," NBER Working Papers 19859, National Bureau of Economic Research, Inc.
    21. Gauthier Lanot, 2017. "Maximum likelihood and economic modeling," IZA World of Labor, Institute for the Study of Labor (IZA), pages 326-326, January.
    22. Gugler, Klaus Peter & Weichselbaumer, Michael & Zulehner, Christine, 2015. "Analysis of mergers in first-price auctions," CEPR Discussion Papers 10799, C.E.P.R. Discussion Papers.
    23. Carlianne Patrick & Amanda Ross & Heather Stephens, 2016. "Designing Policies to Spur Economic Growth: How Regional Scientists Can Contribute to Future Policy Development and Evaluation," Working Papers 16-04, Department of Economics, West Virginia University.

    More about this item

    JEL classification:

    • B41 - Schools of Economic Thought and Methodology - - Economic Methodology - - - Economic Methodology
    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics

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