Econ 350: Empirical Microeconomics

Winter 2004

Instructor: James J. Heckman , jjh@uchicago.edu
TA: Sergio Urzua, surzua@uchicago.edu
Time: Tuesday & Thursday 1:30 PM - 3:00 PM
Room: SS 401

 

 

 

 

Important Links

Contents

Lecture Outlines and Readings

* Lectures will be supplemented by weekly review sessions conducted by Sergio Urzua .
* Lectures on computation, Bayesian MCMC and Structural Estimation by Salvador Navarro will be provided in supplementary sessions. These are an  integral part of the course.
* Problem sets will be assigned each week and students will be asked to synthesize the problem sets in a final paper worth 40% of the grade of the course grade, 10% for classroom participation, and 50% for the final exam.

Lecture 1:

Policy Analysis in Economics; Construction of Counterfactuals; Criteria and Questions of Interest; Overviews of Alternative Approaches; Models

(1) Structural Approach/ Macro and Micro
(2) Treatment Effect Approach
(3) Means vs. Distributions

Examples:
(i) Taxes and Labor Supply
(ii) Adoption of a new technology
(iii) Forecasting the demand for a new good and estimating values of new goods.
(iv) Returns to education and job training
(v) Evaluating the Environment
(vi) Applications in Health Economics

Will work with Economics of Education and Labor Supply in Readings / Will Develop more General Examples in Class

Readings:
Boadway, R. and B. Neil. Welfare Economics, Oxford [Oxfordshire] ; New York : B. Blackwell, 1984. See Section 11: Applied Welfare Economics, Chapts. 7 - 10.

Carneiro, P. and J. Heckman, "Human Capital Policy" in J. Heckman and A. Krueger, eds., Inequality in America: What Role for Human Capital Policy? , MIT Press, 2004.

Domencich, T. and D. McFadden. Urban Travel Demand: a Behavioral Analysis , North Holland: Amsterdam, 1975. Reprinted by The Blackstone Company: Mount Pleasant, MI, 1996.

Heckman, J. and T. MaCurdy (1981). "New Methods for Estimating Labor Supply Functions: A Survey" , Research in Labor Economics , vol. 4, 65-102.

Heckman, J. and E. Vytlacil (2004). " Econometric Evaluation of Social Programs," Handbook of Econometrics , vol. 6, J. Heckman and E. Leamer, eds, North Holland, Section 1.

Sen, A. (1997). On Economic Inequality, 2nd edition, Oxford University Press, Chapters 1, 2, 3.

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Lecture 2: Causal vs. Structural Models

(a) Meaning of a Structural Model (definitions in the literature)
(b) Constructing A Structural Model
(c) Marschak's Maxim
(d) Rubin Causal Model
(i). Effects of Causes vs. Causes of Effects
(e) Dynamic Models of Causality; Granger Causality; Other Notions of Causality
(f) How general is the treatment-control comparison.

Readings:
Haavelmo, T. (1943). "The Statistical Implications of a System of Simultaneous Equations", Econometrica , vol. 11, no. 1, 1 - 12.

Heckman, J. (2000). " Causal Parameters and Policy Analysis in Economics: A Twentieth Century Retrospective ", Quarterly Journal of Economics , vol. 115, no.1,  45 - 97.

Heckman, J. and Vytlacil, E. (2004). " Econometric Evaluation of Social Programs" , Handbook of Econometrics , vol. 6, J. Heckman and E. Leamer, eds, North Holland, Section 1.

Holland, Paul (1986). "Statistics and Causal Inference (with Discussion)" , Journal of the American Statistical Association , vol. 81, no. 396, 945 - 9701.

Holland, Paul (1988). "Causal Inference, Path Analysis, and Recursive Structural Equations Models" , Sociological Methodology , vol. 18, 449 - 484.

Hurwicz, Leonid. (1962). "On the Structural Form of Interdependent Systems", in E. Nagel, P. Suppes, and A. Tarski, eds., Logic, Methodology and Philosophy of Science , Proceedings of the 1960 International Congress, (Stanford University Press), 232 - 239. 

Leamer, E. (1985). "Vector Autoregressions for Causal Inference?", Carnegie-Rochester Conference Series on Public Policy , vol. 22, 255 - 304.

Marschak, J. (1953). "Economic Measurements for Policy and Prediction", in W. Hood and T. Koopmans, eds., Studies in Econometric Method, (Wiley).

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Lecture 3: Schooling and Returns to Schooling and Job Training

Readings:
Card, D. (2001). " Estimating the Return to Schooling: Progress on Some Persistent Econometric Problems ," Econometrica , vol. 69, no. 5, 1127-1160.

Carneiro, P. and J. Heckman (2002). " The Evidence on Credit Constraints in Post-secondary Schooling ", Economic Journal , vol. 112, no. 482, 705-34.

Griliches, Z. (1977). " Estimating the Returns to Schooling: Some Econometric Problems ," Econometrica , vol. 45, no. 1, 1-22.

Heckman, J., L. Lochner and P. Todd (2003). " Fifty Years of Mincer Earnings Regressions ," unpublished manuscript, University of Chicago.

Heckman, J., E. Vytlacil (1998). "Instrumental Variables Methods for the Correlated Random Coefficient Model" , Journal of Human Resources , vol. 33, no. 4, 974 - 987.

Rosen, S. and R. Willis (1979). "Education and Self-Selection" , Journal of Political Economy , vol. 87, No. 5 S7-S36.

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Lectures 4 and 5: Identification--Control Functions, Structural Estimation and Selection Models

(a) Parametric Versions
(b) Non-parametric versions and problems of support (Nonparametric Discrete Choice and Selection)
(c) Criticisms of Control Function Literature (Angrist-Krueger)
(d) Other applications (e.g. Athen and Haile)
(e) Extensions to distributions (Aakvik et al.; Carneiro, Hansen, and Heckman)

Readings:
Aakvik, A., J. Heckman and E. Vytlacil (2004). "Treatment Effects For Discrete Outcomes when Responses to Treatment Vary Among Observationally Identical Persons: An Application to Norwegian Vocational Rehabilitation Programs" , Forthcoming, Journal of Econometrics .

Angrist, J. and A. Krueger (1999), " Empirical Strategies in Labor Economics" , Handbook of Labor Economics , Volume 3, Ashenfelter, A. and D. Card, eds., Amsterdam: Elsevier Science.

Carneiro, P., K. Hansen and J. Heckman (2003). "Estimating Distributions of Treatment Effects With An Application to the Returns to Schooling and Measurement of the Effects of Uncertainty on College Choice" , International Economic Review , vol . 44, no. 2, 361 - 422.

Heckman, J. and B. Honoré (1990). "The Empirical Content of The Roy Model" , Econometrica , vol. 58, no. 5, 1121-1149.

Manski, C. " Identification of Binary Response Models ," Journal of the American Statistical Association , vol. 83, no. 403. (Sep., 1988), pp. 729-738

Powell, J. (1994). "Estimation of Semiparametric Models" , Handbook of Econometrics, vol. 4, R. Engle and D. McFadden, Eds., North Holland.

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Lectures 6 and 7: Identification--Instrumental Variables, Old and New Approaches

(a) Classical IV
(b) LATE
(c) LIV and MTE
(d) Applications to education
(e) Distributions

Readings:
Angrist, J. and G. Imbens (1995), “Two-Stage Least Squares Estimation of Average Causal Effects in Models with Variable Treatment Intensity” , Journal of the American Statistical Association , 90, 431-442.

Carneiro, P. and J.Heckman (2005). "Empirical Estimates of the Returns to Schooling," Forthcoming in E. Hanushek and F. Welch, eds., Handbook of Education .

Carneiro, P., J. Heckman and E. Vytlacil (2001). "Understanding What Instrumental Variables Estimate: Estimating Marginal and Average Returns to Education" , unpublished 2001, revised July, 2003.

Imbens, G. and J. Angrist (1994). "Identification and Estimation of Local Average Treatment Effects" , Econometrica v62, n2 (March): 467-75.

Heckman, J. and E. Vytlacil (2004). "Structural Equations, Treatment Effects and Econometric Policy Evaluation", Fisher Schultz Lecture World Congress of The Econometric Society (2000), forthcoming, Econometrica, (2004).

Heckman, J. and E. Vytlacil. "Understanding What IV Really Estimates in a Model of Heterogeneous Responses: When Agents Select into Treatment Based on Those Responses" , unpublished manuscript, University of Chicago, September 2003

Rosenzweig, M. and K. Wolpin (2000). "Natural ‘Natural Experiments' in Economics" , Journal of Economic Literature, December 2000, pp. 827-874.

Vytlacil, E. (2002). "Independence, Monotonicity, and Latent Index Models: An Equivalence Result", Econometrica, vol. 70, no. 1, 331 - 341.

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Lecture 8: Regression Discontinuity Methods as IV

Readings:
 Hahn, J., P.Todd, and W. Klaauw, (2001). "Identification and Estimation of Treatment Effects with a Regression-Discontinuity Design", Econometrica , vol. 69, no. 1, 201 - 209.

Heckman, J. and E. Vytlacil (2004). "Econometric Evaluation of Social Programs", Handbook of Econometrics .

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Lectures 9 and 10: Identification--Matching

(a) Basic Principles
(b) Comparisons with IV and Control Functions
(c) Support Problems
(d) Applications to Job Training
(e) Distributions
(f) Dynamic Extensions: Lechner
(g) Other Applications

Readings:
Abadie, Alberto (2002). "Semiparametric Difference-in-differences Estimators" , Unpublished Manuscript, Harvard University.

Clements, N., J. Heckman and J. Smith (1997). "Making The Most Out of Programme Evaluations and Social Experiments: Accounting for Heterogeneity in Programme Impacts" , Review of Economic Studies , vol. 64, no. 221, 487-535.

Heckman, J., H. Ichimura, J. Smith, and P. Todd (1998). "Characterizing Selection Bias Using Experimental Data" , Econometrica , vol. 66, no. 5, 1017-1098.

Heckman, J. and S. Navarro (2002). "Using Matching, Instrumental Variables and Control Functions to Estimate Economic Choice Models" , forthcoming, Review of Economics and Statistics , 2004.

LaLonde, R. (1986). "Evaluating The Econometric Evaluations of Employment and Training Programs" , American Economic Review , vol. 76, no.4, 604 620.

Lechner, M. (2002). "Program Heterogeneity and Propensity Score Matching: An Application to the Evaluation of Active Labor Market Policies" , The Review of Economics and Statistics , vol. 84, no. 2, 205 - 220.

Smith, J. and P. Todd (2003). "Is Matching the Answer to LaLonde's Critique of Nonexperimental Methods?", Forthcoming Journal of Econometrics.

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Lecture 11: Bounds

Readings:
Balke, A., and Pearl, J. (1997). “Bounds on Treatment Effects From Studies with Imperfect Compliance” , Journal of the American Statistical Association , vol. 92, no. 439, 1171-1176.

 Haile, P., and E. Tamer (2003). "Inference with an Incomplete Model of English Auctions " , Journal of Political Economy , vol. 111, no. 1, 1-51.

Heckman, J., R. LaLonde, and J. Smith (1999). "The Economics and Econometrics of Active Labor Market Programs", O. Ashenfelter and D. Card, eds., Handbook of Labor Economics , (North Holland, Vol. 3), Section 5: Social Experiments. Part 1 , Part 2 , References , Tables and Figures .  

Heckman, J. and E. Vytlacil (2001). "Instrumental Variables, Selection Models, and Tight Bounds on the Average Treatment Effect" , Econometric Evaluations of Active Labor Market Policies in Europe , M. Lechner and F. Pfeiffer (editors), (Heidelberg, Germany: Physica Verlag), 1-15.

Horowitz, J. and C. Manski (1998), "Censoring of outcomes and regressors due to survey nonresponse: Identification and estimation using weights and imputations" , Journal of Econometrics , vol. 84, no. 1, 37 - 58.

Manski , C. (1990). “ Nonparametric Bounds on Treatment Effects ,” American Economic Review , Papers and Proceedings, vol. 80, 319-323.

Manski, C. (1995). Identification Problems in the Social Sciences , (Cambridge: Harvard University Press).

 Peterson, A. (1976), " Bounds for a Joint Distribution Function with Fixed Sub-Distribution Functions: Application to Competing Risks ," Proceedings of the National Academy of Sciences of the United States of America , vol. 73, no. 1, 11-13.

Tamer, E. (2003). "Incomplete Simultaneous Discrete Response Model with Multiple Equilibria" , The Review of Economic Studies , vol. 70, no. 242, 147 - 165. [to view paper, follow link and click " View/Print PDF article (136K)" ]

Tsiatis, A., (1975). "A Nonidentifiability Aspect of the Problem of Competing Risks" , Proceedings of the National Academy of Sciences of the United States of America , vol. 72, no. 1, 20-22.

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Lecture 12 : Randomization and Social Experiments

(a) Two cases for randomization
(b) Learning from experiments
(c) Practical Experiences with Social Experiments
(i) Randomization Bias
(ii) Substitution Bias
(iii) Attrition Bias
(d) Distributions and Inequality

Readings:
Heckman, James (1992). "Randomization and Social Policy Evaluation", Evaluating Welfare and Training Programs , Charles Manski and Irwin Garfinkel, eds., Cambridge: Harvard University Press,  201-230.

Heckman, J., N. Hohmann, and J. Smith, with M. Khoo (2000). "Substitution and Dropout Bias in Social Experiments: A Study of an Influential Social Experiment" , Quarterly Journal of Economics , vol. 115, no. 2, 651-690.

Heckman, J., R. LaLonde, and J. Smith (1999). "The Economics and Econometrics of Active Labor Market Programs", O. Ashenfelter and D. Card, eds., Handbook of Labor Economics , (North Holland, Vol. 3), 1865-2086, Section 1 , Section 2 , References , Tables and Figures .

Heckman, J. and J. Smith (1995). "Assessing the Case for Social Experiments" , Journal of Economic Perspectives , vol. 9, no. 2, 85-110.

Heckman, J. and E. Vytlacil (2004). "Econometric Evaluation of Social Programs", Handbook of Econometrics .

Manski, C. (1996). "Learning about Treatment Effects from Experiments with Random Assignment of Treatments" , Journal of Human Resources , vol. 31, no. 4, 710 - 733.

Moffitt, R. (2003). "The Role of Randomized Field Trials in Social Science Research: A Perspective from Evaluations of Reforms of Social Welfare Programs" , NBER Working Paper No. t0295.

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Lectures 13 and 14: Dynamic Extensions--Structural Models

Readings:
Cameron, S. and Heckman, J. (1998). "Life Cycle Schooling and Educational Selectivity: Models and Evidence" , Journal of Political Economy , vol. 106, no. 2, 262-311.

Cameron, S. and Heckman, J. (2001). "The Dynamics of Educational Attainment For Blacks, Whites and Hispanics", Journal of Political Economy , vol. 109, no. 3, 455-499.

Eckstein, Z. and K. Wolpin (1989). "The Specification and Estimation of Dynamic Stochastic Discrete Choice Models" , Journal of Human Resources , vol. 24, no. 4, 562 - 598.

Eckstein, Z. and K. Wolpin (1999). "Why Youths Drop out of High School: The Impact of Preferences, Opportunities, and Abilities," Econometrica , 67(6): 1295-1339.

Flinn, C. and J. Heckman (1982). "New Methods For Analyzing Structural Models of Labor Force Dynamics," Journal of Econometrics , January, 18, 115-168.

Hansen, K., J. Heckman and K. Mullen (2003). "The Effect of Schooling and Ability on Achievement Test Scores, " forthcoming, Journal of Econometrics .

Keane, M. and K. Wolpin (1997). "The Career Decisions of Young Men" , Journal of Political Economy , vol. 105, no. 3, 473-522.

Navarro-Lozano, S. (2004). "Why do People Go to School? Understanding the Role of Sequentially Revealed Information", working Phd thesis, University of Chicago.

Rust, J. (1994). "Structural Estimation of Markov Decision Processes", Handbook of Econometrics , vol. 4, North-Holland.

Taber, C. (2000). "Semiparametric Identification and Heterogeneity in Discrete Choice Dynamic Programming Models" , Journal of Econometrics , vol. 96, no. 2, 201 - 229.

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Lectures 15 and 16: General Equilibrium Extensions

(a) Two sector model and Static GE (Maruffo)
(b) Dynamic GE (Heckman, Lochner, and Taber; Browning, Hansen, and Heckman)

Readings:
Dias, M. (2002). "A G.E. Approach to the Evaluation of Social Programs" , unpublished manuscript, UCL London, February.

Heckman, J., L. Lochner and C. Taber (1998). "Explaining Rising Wage Inequality: Explorations With a Dynamic General Equilibrium Model of Labor Earnings with Heterogeneous Agents" , Review of Economic Dynamics , 1, 1-58.

Heckman, J., L. Lochner and C. Taber (1998). "General Equilibrium Cost Benefit Analysis of Education and Tax Policies," in Gustav Ranis and Lakshmi K. Raut, (Ed), Trade, Growth and Development: Essays in Honor of T.N. Srinivasan , Chapter 14, (Elseiver Science, B.V., Amsterdam, 2000), 291-393.

Maruffo, G. (2001). " The Incidence of Social Security Regulation in Economies with Partial Compliance: Evidence from the SS Reform in Mexico ," Unpublished Manuscript, University of Chicago.

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Lectures 17 and 18: Panel Data and Twins Methods

Readings:
Arellano, M. and B. Honoré (2000). “Panel Data” in J. Heckman and E. Leamer, Handbook of Econometrics , Vol. V, (North Holland).

Ashenfelter, O., and A. Krueger (1994). “Estimates of the Economic Returns to Schooling From A New Sample of Twins” , American Economic Review , vol. 84, no. 5, 1157-1173.

Baltagi, B. (1996), Econometric Analysis of Panel Data , (New York, Wiley)

Blundell, R., A. Duncan and C. Meghir (1998). “Estimating Labor Supply Responses Using Tax Policy Reforms” , Econometrica , vol. 66, no. 4, 827-801.

Bound, J., and G. Solon (1999). “Double Trouble” , Economics of Education Review , Fall Issue.

Griliches, Z. (1979). “Sibling Models and Data in Economics: Beginning of A Survey” , Journal of Political Economy, v87, No. 5, Part 2: Education and Income Distribution. (Oct., 1979), pp. S37-S64.

Griliches, Z. and J. Mairesse (1998). “Production Functions: The Search For Identification”,  Econometrics and Economic Theory in the 20th Century , S. Strom, ed., (Cambridge, Cambridge University Press), 169-203.

Heckman, J. and R. Robb (1978), "Alternative Methods for Estimating The Impact of Interventions", Longitudinal Analysis of Labor Market Data, (Cambridge University Press, 1985).

Hsiao, C. (1986). Panel Data , Chapters 1, 2, 3, (Cambridge: Cambridge University Press).

Johnston, J. (1963). Econometric Methods , First Edition, (McGraw Hill), Chapter on Errors in Variables.

Solon, G. (1999). “Survey of Sibling Models”, Handbook of Labor Economics , vol. 4, O. Ashenfelter and D. Card, eds., (North Holland)

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Lecture 19 and 20: Hedonics

Readings:
Ekeland, I., J. Heckman and L. Nesheim (2001). "Identification and Estimation of Hedonic Models", Forthcoming, Journal of Political Economy , February, 2004.

Heckman, J. and J. Scheinkman (1987). Review of Economic Studies .

Koopmans, T. and M. Beckmann (1957). "Assignment Problems and the Location of Economic Activities" , Econometrica , vol. 25, no. 1, 53 - 76.

Lancaster, K. (1971). Consumer Demand: A New Approach , (New York: Columbia University Press).

Rosen, S. (1974). " Hedonic Prices and Implicit Markets: Predict Differentiation in Pure Competition," Journal of Political Economy , 82(1), 34 55.

Sattinger, M. (1979). "Differential Rents and The Distribution of Earnings," Oxford Economic Papers , 31, 60-71.

Sattinger, M. (1993). " Assignment Models of The Distribution of Earnings," Journal of Economic Literature , 31, 831-880.

Tinbergen, J. (1956). "On The Theory of Income Distribution," Weltwirtschaftliches Archiv , vol. 77, 55-173.

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Econometric and Computational References

  Background:

    a) Woodridge, Jeffrey M. (2002). Econometric Analysis of Cross Section and Panel Data , Cambridge,
        Massachusetts: MIT Press.
    b) Ruud, Paul A. (2000). An Introduction to Classical Econometric Theory , New York: Oxford University
        Press.
    c) Amemiya, Takeshi (1985). Advanced Econometrics , Cambridge, Massachusetts: Harvard University
        Press.

Readings:
Casella, G. and E. George (1992). "Explaining the Gibbs Sampler" , The American Statistician , vol. 46, no. 3, 167 - 174.

Chib, S. and E. Greenberg (1995). "Understanding the Metropolis-Hastings Algorithm" , The American Statistician , vol. 49, no. 4, 327 - 335.

Chib, S. and E. Greenberg (1996). "Markov Chain Monte Carlo Simulation Methods in Econometrics", Econometric Theory , vol. 12, 409 - 433.

Gilks, W., S. Richardson and D. Spegelhalter (1996). Markov Chain Monte Carlo in Practice , London, New York: Chapman and Hall.

McCulloch, R., N. Polson and P. Rossi (2000). "A Bayesian analysis of the multinomial probit model with fully identified parameters" , Journal of Econometrics, vol. 99, no.1, 173 - 193.

Robert, C. and G. Casella (1999). Monte Carlo Statistical Methods , New York: Springer.

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