Structural Models for Policy-Making

Philipp Eisenhauer (), Lena Janys (), Christopher Walsh () and Janós Gabler ()

CRC TR 224 Discussion Paper Series from University of Bonn and University of Mannheim, Germany

Abstract: The ex-ante evaluation of policies using structural econometric models is based on estimated parameters as a stand-in for the true parameters. This practice ignores uncertainty in the counterfactual policy predictions of the model. We develop a generic approach that deals with parametric uncertainty using uncertainty sets and frames model-informed policy-making as a decision problem under uncertainty. The seminal human capital investment model by Keane and Wolpin (1997) provides a well-known, influential, and empirically-grounded test case. We document considerable uncertainty in the models’s policy predictions and highlight the resulting policy recommendations obtained from using different formal rules of decision-making under uncertainty.

Keywords: Decision-Making under uncertainty; Structural Microeconomics (search for similar items in EconPapers)
JEL-codes: C44 D81 J01 (search for similar items in EconPapers)
Pages: 43
Date: 2023-12
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