General Equilibrium Treatment Effects: A Study of Tuition Policy

16 Pages Posted: 1 Sep 2000 Last revised: 8 Oct 2010

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)

Lance Lochner

University of Western Ontario - Department of Economics; National Bureau of Economic Research (NBER)

Christopher Taber

National Bureau of Economic Research (NBER); University of Wisconsin - Madison

Date Written: February 1998

Abstract

This paper defines and estimates general equilibrium treatment effects. The conventional approach in the literature on treatment effects ignores interactions among individuals induced by the policy interventions being studied. Focusing on the impact of tuition policy, and using estimates from our dynamic overlapping generations general equilibrium model of capital and human capital formation, we find that general equilibrium impacts of tuition on college enrollment are an order of magnitude smaller than those reported in the literature on microeconomic treatment effects. The assumptions used to justify the LATE parameter in a partial equilibrium setting do not hold in a general equilibrium setting. Policy changes induce two way flows. We extend the LATE concept to a general equilibrium setting. We present a more comprehensive evaluation to program evaluation by considering both the tax and benefit consequences of the program being evaluated and placing the analysis in a market setting.

Suggested Citation

Heckman, James J. and Lochner, Lance and Taber, Christopher R., General Equilibrium Treatment Effects: A Study of Tuition Policy (February 1998). NBER Working Paper No. w6426. Available at SSRN: https://ssrn.com/abstract=226173

James J. Heckman (Contact Author)

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Lance Lochner

University of Western Ontario - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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Christopher R. Taber

National Bureau of Economic Research (NBER) ( email )

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University of Wisconsin - Madison ( email )

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Madison, WI 53706-1481
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