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Evaluating the Welfare State

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  • James J. Heckman
  • Jeffrey A. Smith

Abstract

A variety of criteria are relevant for evaluating alternative policies in democratic societies composed of persons with diverse values and perspectives. In this paper, we consider alternative criteria for evaluating the welfare state, and the data required to operationalize them. We examine sets of identifying assumptions that bound, or exactly produce, these alternative criteria given the availability of various types of data. We consider the economic questions addressed by two widely-used econometric evaluation estimators and relate them to the requirements of a comprehensive cost-benefit analysis. We present evidence on how the inference from the most commonly used econometric evaluation estimator is modified when the direct costs of a program are fully assessed, including the welfare costs of the taxes required to support the program. Finally, we present evidence of the empirical inconsistency of alternative criteria derived from evaluations based on on self-selection and attrition decisions, and on self-reported evaluations from questionnaires when applied to a prototypical job training program.

Suggested Citation

  • James J. Heckman & Jeffrey A. Smith, 1998. "Evaluating the Welfare State," NBER Working Papers 6542, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:6542
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    References listed on IDEAS

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    1. Ashenfelter, Orley C, 1978. "Estimating the Effect of Training Programs on Earnings," The Review of Economics and Statistics, MIT Press, vol. 60(1), pages 47-57, February.
    2. James J. Heckman, 1974. "Effects of Child-Care Programs on Women's Work Effort," NBER Chapters,in: Marriage, Family, Human Capital, and Fertility, pages 136-169 National Bureau of Economic Research, Inc.
    3. Heckman, James J, 1978. "Dummy Endogenous Variables in a Simultaneous Equation System," Econometrica, Econometric Society, vol. 46(4), pages 931-959, July.
    4. Heckman, James J & Honore, Bo E, 1990. "The Empirical Content of the Roy Model," Econometrica, Econometric Society, vol. 58(5), pages 1121-1149, September.
    5. Chipman, John S & Moore, James C, 1976. "Why an Increase in GNP Need Not Imply an Improvement in Potential Welfare," Kyklos, Wiley Blackwell, vol. 29(3), pages 391-418.
    6. John C. Harsanyi, 1955. "Cardinal Welfare, Individualistic Ethics, and Interpersonal Comparisons of Utility," Journal of Political Economy, University of Chicago Press, vol. 63, pages 309-309.
    7. Harberger, Arnold C, 1971. "Three Basic Postulates for Applied Welfare Economics: An Interpretive Essay," Journal of Economic Literature, American Economic Association, vol. 9(3), pages 785-797, September.
    8. Arulampalam, W. & Robin A. Naylor & Jeremy P. Smith, 2002. "University of Warwick," Royal Economic Society Annual Conference 2002 9, Royal Economic Society.
    9. Couch, Kenneth A, 1992. "New Evidence on the Long-Term Effects of Employment Training Programs," Journal of Labor Economics, University of Chicago Press, vol. 10(4), pages 380-388, October.
    10. James Heckman & Hidehiko Ichimura & Jeffrey Smith & Petra Todd, 1998. "Characterizing Selection Bias Using Experimental Data," Econometrica, Econometric Society, vol. 66(5), pages 1017-1098, September.
    11. Heckman, James J, 1996. "Randomization as an Instrumental Variable: Notes," The Review of Economics and Statistics, MIT Press, vol. 78(2), pages 336-341, May.
    12. Heckman, James J, 1974. "Shadow Prices, Market Wages, and Labor Supply," Econometrica, Econometric Society, vol. 42(4), pages 679-694, July.
    13. Heckman, James J. & Robb, Richard Jr., 1985. "Alternative methods for evaluating the impact of interventions : An overview," Journal of Econometrics, Elsevier, vol. 30(1-2), pages 239-267.
    14. James J. Heckman & Hidehiko Ichimura & Petra Todd, 1998. "Matching As An Econometric Evaluation Estimator," Review of Economic Studies, Oxford University Press, vol. 65(2), pages 261-294.
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    More about this item

    JEL classification:

    • H43 - Public Economics - - Publicly Provided Goods - - - Project Evaluation; Social Discount Rate
    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments

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