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  4. March 2023
  5. The Best of Both Worlds: Combining Randomized Controlled Trials with Structural Modeling

The Best of Both Worlds: Combining Randomized Controlled Trials with Structural Modeling

  • Petra E. Todd
  • Kenneth I. Wolpin
Journal of Economic Literature
vol. 61, no. 1, March 2023
(pp. 41-85)
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Abstract

There is a long-standing debate about the extent to which economic theory should inform econometric modeling and estimation. This debate is particularly evident in the program/policy evaluation literature, where reduced-form (experimental or quasi-experimental) and structural modeling approaches are often viewed as rival methodologies. Reduced-form proponents criticize the assumptions invoked in structural applications. Structural modeling advocates point to the limitations of reduced-form approaches in not being able to inform about program impacts prior to implementation or about the costs and benefits of program designs that deviate from the one that was implemented. In this paper, we argue that there is a new emerging view of a natural synergy between these two approaches, that they can be melded to exploit the advantages and ameliorate the disadvantages of each. We provide examples of how data from randomized controlled trials (RCTs), the exemplar of reduced form practitioners, can be used to enhance the credibility of structural estimation. We also illustrate how the structural approach complements experimental analyses by enabling evaluation of counterfactual policies/programs. Lastly, we survey many recent studies that combine these methodologies in various ways across different subfields within economics.

Citation

Todd, Petra E., and Kenneth I. Wolpin. 2023. "The Best of Both Worlds: Combining Randomized Controlled Trials with Structural Modeling." Journal of Economic Literature, 61 (1): 41-85. DOI: 10.1257/jel.20211652

Additional Materials

JEL Classification

  • C21 Single Equation Models; Single Variables: Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions
  • C52 Model Evaluation, Validation, and Selection
  • C53 Forecasting Models; Simulation Methods
  • H24 Personal Income and Other Nonbusiness Taxes and Subsidies; includes inheritance and gift taxes
  • I38 Welfare, Well-Being, and Poverty: Government Programs; Provision and Effects of Welfare Programs
  • J13 Fertility; Family Planning; Child Care; Children; Youth
  • R38 Production Analysis and Firm Location: Government Policy