Scandinavian Working Papers in Economics

Working Paper Series,
IFAU - Institute for Evaluation of Labour Market and Education Policy

No 2003:9: Estimating distributions of treatment effects with an application to the returns to schooling and measurement of the effects of uncertainty on college choice

Pedro Carneiro , Karsten Hansen () and James Heckman
Additional contact information
Pedro Carneiro: Department of Economics, The University of Chicago, Postal: 1126 E. 59th Street, Chicago, IL 60637
Karsten Hansen: Kellog School of Management, Northwestern University, Postal: 2001 Sheridan Rd, Evanston, IL 60208
James Heckman: Department of Economics, The University of Chicago, Postal: 1126 East 59th Street, Chicago, IL 60637

Abstract: 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.

Keywords: Factor models; model of schooling; distributions of counterfactual outcomes

JEL-codes: C31

63 pages, January 22, 2003

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