The Best of Both Worlds: Combining Randomized Controlled Trials with Structural Modeling

Petra Todd and Kenneth I. Wolpin

Journal of Economic Literature, 2023, vol. 61, issue 1, 41-85

Abstract: There is a long-standing debate about the extent to which economic theory should inform econometric modeling and estimation. This debate is particularly evident in the program/policy evaluation literature, where reduced-form (experimental or quasi-experimental) and structural modeling approaches are often viewed as rival methodologies. Reduced-form proponents criticize the assumptions invoked in structural applications. Structural modeling advocates point to the limitations of reduced-form approaches in not being able to inform about program impacts prior to implementation or about the costs and benefits of program designs that deviate from the one that was implemented. In this paper, we argue that there is a new emerging view of a natural synergy between these two approaches, that they can be melded to exploit the advantages and ameliorate the disadvantages of each. We provide examples of how data from randomized controlled trials (RCTs), the exemplar of reduced form practitioners, can be used to enhance the credibility of structural estimation. We also illustrate how the structural approach complements experimental analyses by enabling evaluation of counterfactual policies/programs. Lastly, we survey many recent studies that combine these methodologies in various ways across different subfields within economics.

JEL-codes: C21 C52 C53 H24 I38 J13 R38 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (9)

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DOI: 10.1257/jel.20211652

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