NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Accounting for Heterogeneity, Diversity, and General Equilibriumin Evaluating Social Programs

James J. Heckman

NBER Working Paper No. 7230
Issued in July 1999
NBER Program(s):   LS   PE

This paper considers the problem of policy evaluation in a modern society with heterogeneous agents and diverse groups with conflicting interests. Several different approaches to the policy evaluation problem are compared including the approach adopted in modern welfare economics, the classical representative agent approach adopted in macroecononomics and the microeconomic treatment effect approach. A new approach to the policy evaluation problem is developed and applied that combines and extends the best features of these earlier approaches.Evidence on the importance of heterogeneity is presented. Using an empirically based dynamic general equilibrium model of skill formation with heterogeneous agents, the benefits of the more comprehensive approach to policy evaluation are examined in the context of examining the impact of tax reform on skill formation and the political economy aspects of such reform. A parallel analysis of tution policy is presented.

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Document Object Identifier (DOI): 10.3386/w7230

Published: Heckman, James. "Accounting For Heterogeneity, Diversity And General Equilibrium In Evaluating Social Programmes," Economic Journal, 2001, v111(475,Nov), 654-699.

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