Accounting for Heterogeneity, Diversity, and General Equilibriumin Evaluating Social Programs

108 Pages Posted: 28 Jul 1999 Last revised: 18 Jul 2008

See all articles by James J. Heckman

James J. Heckman

University of Chicago - Department of Economics; National Bureau of Economic Research (NBER); American Bar Foundation; Institute for the Study of Labor (IZA); CESifo (Center for Economic Studies and Ifo Institute)

Date Written: July 1999

Abstract

This paper considers the problem of policy evaluation in a modern society with heterogeneous agents and diverse groups with conflicting interests. Several different approaches to the policy evaluation problem are compared including the approach adopted in modern welfare economics, the classical representative agent approach adopted in macroecononomics and the microeconomic treatment effect approach. A new approach to the policy evaluation problem is developed and applied that combines and extends the best features of these earlier approaches.Evidence on the importance of heterogeneity is presented. Using an empirically based dynamic general equilibrium model of skill formation with heterogeneous agents, the benefits of the more comprehensive approach to policy evaluation are examined in the context of examining the impact of tax reform on skill formation and the political economy aspects of such reform. A parallel analysis of tution policy is presented.

Suggested Citation

Heckman, James J., Accounting for Heterogeneity, Diversity, and General Equilibriumin Evaluating Social Programs (July 1999). NBER Working Paper No. w7230. Available at SSRN: https://ssrn.com/abstract=171130

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