Sufficient Statistics Revisited

34 Pages Posted: 26 May 2020

See all articles by Henrik Kleven

Henrik Kleven

Princeton University - Woodrow Wilson School of Public and International Affairs

Date Written: May 2020

Abstract

This paper reviews and generalizes the sufficient statistics approach to policy evaluation. The idea of the approach is that the welfare effect of policy changes can be expressed in terms estimable reduced-form elasticities, allowing for policy evaluation without estimating the structural primitives of fully specified models. The approach relies on three assumptions: that policy changes are small, that government policy is the only source of market imperfection, and that a set of high-level restrictions on the environment and on preferences can be used to reduce the number of elasticities to be estimated. We generalize the approach in all three dimensions. It is possible to develop transparent sufficient statistics formulas under very general conditions, but the estimation requirements increase greatly. Starting from such general formulas elucidates that feasible empirical implementations are in fact structural approaches.

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Suggested Citation

Kleven, Henrik, Sufficient Statistics Revisited (May 2020). NBER Working Paper No. w27242. Available at SSRN: https://ssrn.com/abstract=3609695

Henrik Kleven (Contact Author)

Princeton University - Woodrow Wilson School of Public and International Affairs ( email )

Princeton University
Princeton, NJ 08544-1021
United States

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