Estimating Distributions of Treatment Effects with an Application to the Returns to Schooling and Measurement of the Effects of Uncertainty on College

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 who loses from commonly proposed educational reforms.

Identifying and Estimating the Distributions of Ex Post and Ex Ante Returns to Schooling

“…Carneiro, Hansen, and Heckman (2003), Cunha, Heckman, and Navarro (2005a,b) and use choice information to extract ex ante or forecast components of earnings and to distinguish them from realized earnings under different market environments. The difference between forecast and realized earnings allows them to identify the distributions of the components of uncertainty facing agents at the time they make their schooling decisions.…”

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AbstractThis paper surveys a recent body of research by Heckman (2001, 2003), ), Cunha, Heckman, and Navarro (2005a,b, 2006, Heckman and Navarro (2006) and Navarro (2004) that estimates and identifies the ex post distribution of returns to schooling and determines ex ante distributions of returns on which agents base their schooling choices. We discuss methods and evidence, and state a fundamental identification problem concerning the separation of preferences, market structures and agent information sets.

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Stay in school or start working? — The human capital investment decision under uncertainty and irreversibility

“…With each additional (successful) year of schooling the entry-level wage increases, and hence the level of the earnings stream rises (see the dotted line in figure 1). 7 However, even if another year of schooling can be expected 5 Recent empirical studies suggest that education costs are an important ingredient of the education decision (see e.g. Heckman (2008)).…”

“…5 In this model C is defined as the individual cost of a successfully completed year of schooling. Hence, a student with low capabilities would have to spend more to successfully complete a year of schooling.…”

Cognitive performance in competitive environments: Evidence from a natural experiment

“…In particular, for a variety of dimensions of behavior and for many labor market outcomes, a change in noncognitive skills from the lowest to the highest level has an effect on behavior that is comparable to or greater than a corresponding change in cognitive skills. An emerging body of literature also finds that "psychic" costs explain a range of economic and social behavior (see, e.g., Carneiro, Hansen, and Heckman (2003), Carneiro and Heckman (2003), Cunha, Heckman and Navarro (2005), Heckman, Lochner and Todd (2006)). This is important because there are numerous settings that represent competitive situations that involve cognitive performance (e.g., test taking, student competition in schools, competitions for promotion in certain firms and organizations, and others).…”