Project description
What are the effects of economic policies?
Economic policies affect people’s livelihood. Applied economists evaluate these impacts. With this in mind, the ERC-funded REALLYCREDIBLE project will explore the credibility revolution experienced by applied economists. Specifically, the project will evaluate the assumption that policy’s effect is constant. Since this assumption is not credible in most applications, the research will explore a series of new differences-in-differences estimators, which do not rely on this constant effect assumption. Next, the project will investigate the biased and unbiased estimators of a policy’s effect. A third part of the project involves a randomised controlled trial to measure the effect of following an online course presenting policy evaluations. The focus will be on policymakers and the general public.
Objective
"Applied economists routinely evaluate the effect of economic policies. For instance, what is the effect of raising the minimum wage on employment? Angrist & Pischke (2010) argue that applied economics has recently experienced a ""credibility revolution'': by switching to transparent methods to evaluate policies, applied economists have increased the credibility of their findings, and the impact of their work.
In the first part of this proposal, I show that the credibility revolution is not complete. Two-way fixed effects regression, a policy-evaluation method used in as many as 26% of the most-highly cited papers recently published in the American Economic Review, relies on the assumption that the policy's effect is constant, across units and over time. In most applications, this assumption is not credible. Therefore, I propose a series of new differences-in-differences estimators, that do not rely on this constant effect assumption, and that can be used in virtually all the applications where two-way fixed effects regressions have been used.
In the second part of this proposal, I argue that the credibility revolution's focus on unbiased estimators may be hard to defend, as variance also matters. I explore two ways of trading-off bias and variance. The first amounts to combining an unbiased and a biased but potentially more efficient estimator of the same parameter. The second amounts to deriving the minimax estimator of the policy's effect, under the assumption that this effect cannot be larger than a (potentially large) constant B.
Finally, the third part investigates the potential impact of the ``credibility revolution''. Specifically, I will run a randomized controlled trial to measure the effect of following an online course presenting policy evaluations, in two very different populations: policy makers and members of the general public, focusing on individuals with a low trust in institutions in that second group.
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Fields of science
Programme(s)
- HORIZON.1.1 - European Research Council (ERC) Main Programme
Funding Scheme
HORIZON-AG - HORIZON Action Grant Budget-BasedHost institution
75341 Paris
France