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Accounting for Heterogeneity, Diversity, and General Equilibriumin Evaluating Social Programs

  • James J. Heckman

This paper considers the problem of policy evaluation in a modern society with heterogeneous agents and diverse groups with conflicting interests. Several different approaches to the policy evaluation problem are compared including the approach adopted in modern welfare economics, the classical representative agent approach adopted in macroecononomics and the microeconomic treatment effect approach. A new approach to the policy evaluation problem is developed and applied that combines and extends the best features of these earlier approaches.Evidence on the importance of heterogeneity is presented. Using an empirically based dynamic general equilibrium model of skill formation with heterogeneous agents, the benefits of the more comprehensive approach to policy evaluation are examined in the context of examining the impact of tax reform on skill formation and the political economy aspects of such reform. A parallel analysis of tution policy is presented.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 7230.

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Date of creation: Jul 1999
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Publication status: published as Heckman, James. "Accounting For Heterogeneity, Diversity And General Equilibrium In Evaluating Social Programmes," Economic Journal, 2001, v111(475,Nov), 654-699.
Handle: RePEc:nbr:nberwo:7230
Note: LS PE
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  1. Heckman, James J, 1974. "Effects of Child-Care Programs on Women's Work Effort," Journal of Political Economy, University of Chicago Press, vol. 82(2), pages S136-S163, Part II, .
  2. James Heckman & Hidehiko Ichimura & Jeffrey Smith & Petra Todd, 1998. "Characterizing Selection Bias Using Experimental Data," NBER Working Papers 6699, National Bureau of Economic Research, Inc.
  3. James Davies & John Whalley, 1991. "Taxes and Capital Formation: How Important is Human Capital?," NBER Chapters, in: National Saving and Economic Performance, pages 163-200 National Bureau of Economic Research, Inc.
  4. Rothschild, Michael & Stiglitz, Joseph E., 1970. "Increasing risk: I. A definition," Journal of Economic Theory, Elsevier, vol. 2(3), pages 225-243, September.
  5. James J. Heckrnan, 1974. "Effects of Child-Care Programs on Women's Work Effort," NBER Chapters, in: Economics of the Family: Marriage, Children, and Human Capital, pages 491-524 National Bureau of Economic Research, Inc.
  6. James J. Heckman & Edward J. Vytlacil, 2000. "Local Instrumental Variables," NBER Technical Working Papers 0252, National Bureau of Economic Research, Inc.
  7. Imbens, Guido W & Angrist, Joshua D, 1994. "Identification and Estimation of Local Average Treatment Effects," Econometrica, Econometric Society, vol. 62(2), pages 467-75, March.
  8. James Heckman & Lance Lochner & Christopher Taber, 1998. "Explaining Rising Wage Inequality: Explanations With A Dynamic General Equilibrium Model of Labor Earnings With Heterogeneous Agents," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(1), pages 1-58, January.
  9. Heckman, James J & Honore, Bo E, 1990. "The Empirical Content of the Roy Model," Econometrica, Econometric Society, vol. 58(5), pages 1121-49, September.
  10. James J. Heckman, 1977. "Dummy Endogenous Variables in a Simultaneous Equation System," NBER Working Papers 0177, National Bureau of Economic Research, Inc.
  11. Heckman, James J & Smith, Jeffrey, 1997. "Making the Most Out of Programme Evaluations and Social Experiments: Accounting for Heterogeneity in Programme Impacts," Review of Economic Studies, Wiley Blackwell, vol. 64(4), pages 487-535, October.
  12. 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.
  13. Heckman, James J. & Lalonde, Robert J. & Smith, Jeffrey A., 1999. "The economics and econometrics of active labor market programs," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 31, pages 1865-2097 Elsevier.
  14. Maital, Shlomo, 1973. "Public Goods and Income Distribution: Some Further Results," Econometrica, Econometric Society, vol. 41(3), pages 561-68, May.
  15. Trostel, Philip A, 1993. "The Effect of Taxation on Human Capital," Journal of Political Economy, University of Chicago Press, vol. 101(2), pages 327-50, April.
  16. Heckman, James J, 1990. "Varieties of Selection Bias," American Economic Review, American Economic Association, vol. 80(2), pages 313-18, May.
  17. 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 380-88, October.
  18. Arulampalam, W. & Robin A. Naylor & Jeremy P. Smith, 2002. "University of Warwick," Royal Economic Society Annual Conference 2002 9, Royal Economic Society.
  19. James J. Heckman & Jeffrey A. Smith, 1995. "Assessing the Case for Social Experiments," Journal of Economic Perspectives, American Economic Association, vol. 9(2), pages 85-110, Spring.
  20. 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.
  21. Heckman, James J, 1976. "A Life-Cycle Model of Earnings, Learning, and Consumption," Journal of Political Economy, University of Chicago Press, vol. 84(4), pages S11-44, August.
  22. James J. Heckman & Jeffrey A. Smith, 1998. "Evaluating the Welfare State," NBER Working Papers 6542, National Bureau of Economic Research, Inc.
  23. 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 785-97, September.
  24. Heckman, James J, 1974. "Shadow Prices, Market Wages, and Labor Supply," Econometrica, Econometric Society, vol. 42(4), pages 679-94, July.
  25. Heckman, James J & Ichimura, Hidehiko & Todd, Petra, 1998. "Matching as an Econometric Evaluation Estimator," Review of Economic Studies, Wiley Blackwell, vol. 65(2), pages 261-94, April.
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