Ekonometrika fani bilan tanishuv

A Note on Randomized Experiments

(cont’d)

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• 
  extremely costly: budget = $12 million (for more info, see
  STAR_Facts.pdf from my website)
  
• 
  even though the basic problem sounds fairly simple, and huge costs have been incurred in order to get everything done correctly, the are still doubts about the plausibility of the results
  (see ClassSizeDebate.pdf)
  

Randomized Experiments Sum-Up:

If carried out properly, randomized experiments can substitute the ceteris paribus conditions. However, in social sciences, these experiments are typically either impossible, or at least unethical or extremely costly to conduct.

Steps in Empirical Economic Analysis

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Step 1: Formulate the question of interest.

Step 2: Find a suitable economic model. Step 3: Turn it into an econometric model. Step 4: Obtain suitable data.

Step 5: Use econometric methods to estimate the econometric model.

Step 6: If needed, use hypothesis tests to answer the question from step 1.

General scheme

Steps in Empirical Economic Analysis

(cont’d)

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Step 1: Formulate the question of interest.

• 
  example (crime vs. wage): does the wage that can be earned in legal employment affect the decision to engage in criminal activity?
  Step 2: Find a suitable economic model.
  
• 
  formal relationships between economic variables
  
• 
  example (crime vs. wage): Gary Becker (1968) – max. utility:
  y = f(x1,x2,x3,x4,x5,x6,x7) y hours spent in criminal activity
  
  x1 criminal “hourly wage”
  
  x2 hourly wage in legal employment
  
  x3 income other than from crime or employment
  
  x4 probability of getting caught
  
  x5 probability of being convicted if caught
  
  x6 expected sentence if convicted
  
  x7 age