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Structural models for policy-making: Coping with parametric uncertainty by Eisenhauer, Philipp; Gabler, Janoś; Janys, Lena; Walsh, Christopher is a scholarly article available to read on EtoBox.

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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.

Author

Eisenhauer, Philipp; Gabler, Janoś; Janys, Lena; Walsh, Christopher

Published

2021

Language

EN