Sufficient Statistics for Welfare Analysis: A Bridge Between Structural and Reduced-Form Methods

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Sufficient Statistics for Welfare Analysis: A Bridge Between Structural and Reduced-Form Methods

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Title: Sufficient Statistics for Welfare Analysis: A Bridge Between Structural and Reduced-Form Methods
Author: Chetty, Nadarajan
Citation: Chetty, Raj. 2009. Sufficient statistics for welfare analysis: a bridge between structural and reduced-form methods. Annual Review of Economics 1:451-488.
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Abstract: The debate between structural and reduced-form approaches has generated substantial controversy in applied economics. This article reviews a recent literature in public economics that combines the advantages of reduced-form strategies—transparent and credible identification—with an important advantage of structural models—the ability to make predictions about counterfactual outcomes and welfare. This literature has developed formulas for the welfare consequences of various policies that are functions of reduced-form elasticities rather than structural primitives. I present a general framework that shows how many policy questions can be answered by estimating a small set of sufficient statistics using program-evaluation methods. I use this framework to synthesize the modern literature on taxation, social insurance, and behavioral welfare economics. Finally, I discuss problems in macroeconomics, labor, development, and industrial organization that could be tackled using the sufficient statistic approach.
Published Version: doi:10.1146/annurev.economics.050708.142910
Terms of Use: This article is made available under the terms and conditions applicable to Open Access Policy Articles, as set forth at http://nrs.harvard.edu/urn-3:HUL.InstRepos:dash.current.terms-of-use#OAP
Citable link to this page: http://nrs.harvard.edu/urn-3:HUL.InstRepos:9748528

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  • FAS Scholarly Articles [6463]
    Peer reviewed scholarly articles from the Faculty of Arts and Sciences of Harvard University
 
 

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