Sufficient Statistics for Welfare Analysis: A Bridge Between Structural and Reduced-Form Methods
Year: 2009
Type: review
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.
Source: Annual Review of Economics
Author: Raj Chetty
Institutions: National Bureau of Economic Research, Harvard University
Language: English
Subfield: Statistics and Probability
Field: Mathematics
Domain: Physical Sciences
Open Access status: bronze
Funder: National Science Foundation
OpenAlex ID: W2129681252