TY  - JOUR
AU  - Chetty,Raj
TI  - Sufficient Statistics for Welfare Analysis: A Bridge Between Structural and Reduced-Form Methods
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 14399
PY  - 2008
Y2  - October 2008
UR  - http://www.nber.org/papers/w14399
L1  - http://www.nber.org/papers/w14399.pdf
N1  - Author contact info:
Raj Chetty
Department of Economics
Harvard University
1805 Cambridge St.
Cambridge, MA 02138
Tel: 617-744-9492
E-Mail: chetty@fas.harvard.edu
AB  - The debate between "structural" and "reduced-form" approaches has generated substantial controversy in applied economics.  This article reviews a recent literature in public economics that combines the advantages of reduced-form strategies -- transparent and credible identification -- with an important advantage of structural models -- the ability to make predictions about counterfactual outcomes and welfare. This recent work has developed formulas for the welfare consequences of various policies that are functions of high-level elasticities rather than deep primitives.  These formulas provide theoretical guidance for the measurement of treatment effects using program evaluation methods.  I present a general framework that shows how many policy questions can be answered by identifying a small set of sufficient statistics.  I use this framework to synthesize the modern literature on taxation, social insurance, and behavioral welfare economics.  Finally, I discuss topics in labor economics, industrial organization, and macroeconomics that can be tackled using the sufficient statistic approach.
ER  -