Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/236348 
Year of Publication: 
2021
Series/Report no.: 
IZA Discussion Papers No. 14317
Publisher: 
Institute of Labor Economics (IZA), Bonn
Abstract: 
The ex-ante evaluation of policies using structural econometric models is based on estimated parameters as a stand-in for the truth. 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 policymaking as a decision problem under uncertainty. The seminal human capital investment model by Keane and Wolpin (1997) provides us with a well-known, influential, and empirically-grounded test case. We document considerable uncertainty in their policy predictions and highlight the resulting policy recommendations from using different formal rules on decision-making under uncertainty.
Subjects: 
uncertainty quantification
structural estimation
statistical decision rules
JEL: 
C44
C54
D81
Document Type: 
Working Paper

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