The Paradox of Policy-Relevant Natural Experiments

Gilles Chemla and Christopher Hennessy

No 11361, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We examine robustness of evidence derived from ideal randomizations applied to atomistic subjects in dynamic settings. Paradoxically, once experimental evidence is viewed as sufficiently clean to use, it then becomes contaminated by ex post endogeneity: Measured responses depend upon priors and the objective function into which evidence is fed. Moreover, agents policy beliefs become endogenously correlated with their causal parameters, clouding inference. Finally, treatment-control differences are contaminated absent quadratic adjustment costs. Constructively, we illustrate how inference can be corrected accounting for feedback and highlight factors mitigating contamination.

Keywords: Randomized controlled trials; Natural policy experiments; Firms; investment; Pollution; Government (search for similar items in EconPapers)
Date: 2016-06
New Economics Papers: this item is included in nep-env and nep-exp
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Citations: View citations in EconPapers (1)

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