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Equilibrium Policy Experiments and the Evaluation of Social Programs

  • Jeremy Lise
  • Shannon Seitz
  • Jeffrey Smith

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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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
Date of revision:
Handle: RePEc:nbr:nberwo:10283
Note: LS PE
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  1. Bruno, VAN DER LINDEN, 2005. "Equilibrium Evaluation of Active Labor Market Programmes Enhancing Matching Effectiveness," Discussion Papers (ECON - Département des Sciences Economiques) 2005007, Université catholique de Louvain, Département des Sciences Economiques.
  2. James Albrecht (Georgetown University), Gerard J. van den Berg (Free University Amsterdam), and Susan Vroman (Georgetown University), 2005. "The Knowledge Lift: The Swedish Adult Education Program that Aimed to Eliminate Low Worker Skill Levels," Working Papers gueconwpa~05-05-08, Georgetown University, Department of Economics.
  3. David Card & Dean R. Hyslop, 2004. "Estimating the Effects of a Time Limited Earnings Subsidy for Welfare Leavers," NBER Working Papers 10647, National Bureau of Economic Research, Inc.
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  6. Jeremy Lise & Shannon Seitz & Jeffrey Smith, 2006. "Evaluating Search and Matching Models Using Experimental Data," Working Papers 1074, Queen's University, Department of Economics.
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  12. Card, D. & Michalopoulos, C. & Robins, P.K., 2001. "Measuring Wage Growth Among Former Welfare Recipients," Papers 2001-5, Gouvernement du Canada - Human Resources Development.
  13. A. Smith, Jeffrey & E. Todd, Petra, 2005. "Does matching overcome LaLonde's critique of nonexperimental estimators?," Journal of Econometrics, Elsevier, vol. 125(1-2), pages 305-353.
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  16. Lars Peter Hansen & James J. Heckman, 1996. "The Empirical Foundations of Calibration," Journal of Economic Perspectives, American Economic Association, vol. 10(1), pages 87-104, Winter.
  17. Lin, Zhengxi, 1998. "Employment Insurance in Canada: Recent Trends and Policy Changes," Analytical Studies Branch Research Paper Series 1998125e, Statistics Canada, Analytical Studies Branch.
  18. Connolly, Helen & Gottschalk, Peter T., 2004. "Do Earnings Subsidies Affect Job Choice?," IZA Discussion Papers 1322, Institute for the Study of Labor (IZA).
  19. James J. Heckman & Lance Lochner & Christopher Taber, 1998. "General Equilibrium Treatment Effects: A Study of Tuition Policy," NBER Working Papers 6426, National Bureau of Economic Research, Inc.
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