Carneiro, Pedro Hansen, Karsten T. Heckman, James Joseph
Year of Publication:
IZA Discussion Papers No. 767
Institute for the Study of Labor (IZA), Bonn
This paper uses factor models to identify and estimate distributions of counterfactuals. We extend LISREL frameworks to a dynamic treatment effect setting, extending matching to account for unobserved conditioning variables. Using these models, we can identify all pairwise and joint treatment effects. We apply these methods to a model of schooling and determine the intrinsic uncertainty facing agents at the time they make their decisions about enrollment in school. Reducing uncertainty in returns raises college enrollment. We go beyond the ?Veil of Ignorance? in evaluating educational policies and determine who benefits and loses from commonly proposed educational reforms.
policy evaluation returns to schooling factor models counterfactual distributions