Welcome to Dynamic Micro Models and Policy Evaluation

Summer 2009. Universitat Pompeu Fabra. Monday July 13 to Friday July 17, from 9am to 11am (theory), and 3pm to 4pm (practice).

Office Hours

Hugo Benitez-Silva: Monday to Friday: 1:45pm to 2:45pm

Syllabus

Announcements

Welcome to Barcelona.

Assignments

Preliminary Readings

Read the NBER paper by Judd I linked below, and Rust's discussions on economic complexity that I also link below. As well as Rust's recent piece on dynamic programming, and a paper by Keane on structural models, and Rust's response to it.

Judd's insights on Computational Economics and its connection with Economic Theory.

Rust's insights on Computational and Economic Complexity.

An Overview of Dynamic Programming by John Rust.

Structural vs. Atheoretic Approaches to Econometrics, by Michael Keane.

Comments by John Rust on the paper by Michael Keane titled "Structural vs. Atheoretic Approaches to Econometrics".

Also, read the short paper by Wolpin in AER, May 2007, pages 48-52.

Review paper on the estimation of Dynamic Discrete Choice Structural Models by Aguirregabiria and Mira. No need to read it right now, but useful reference to have.

Also very interesting and a good reference is Manuel Santos' chapter in the Handbook of Macroeconomics (Chapter 5) titled "Numerical Solution of Dynamic Economic Models."

Also Chapters 2 and 3 in Ljungqvist and Sangent's book, and Chapter 12 in Judd's book.

Monday July 13 and Tuesday July 14

Introduction. Policy (Program) Evaluation (ex-post) and Program Design (ex-ante vs. ex-post), Treatment, Controls, Natural Experiments, Randomized Experiments, Models, and Data. From the Biological and Medical Sciences to the Social Sciences, and to Economics.

Reduced Form vs. Structural Models: The Lucas Critique.

Notes on Stochastic Decision Problems: Theory

The notes are based in part on Rust's working paper: Do People Behave According to Bellman's Principle of Optimality?

Read Phelps (1962), Levhari and Srinivasan (1969) and Hakansson (1970). We will talk about these models in class. Phelps, Ecta 1962

Hakansson, Ecta 1970

Levhari and Srinivasan, RESTUD 1969

If you are interested in the topic read also Thurow (1969), Nagatani (1972), Miller (1974), Zeldes (1989a), Zeldes (1989b), Deaton (1991), Van Der Ploeg (1993), Heckman (1974), and Martin Browning and Thomas F. Crossley, J. of E. Perspectives (2001).

If you are interested in issues of time discounting see:

Rubinstein, IER Nov. 2003

Frederick et al., JEL June 2002

Derivation of the finite horizon counterpart of the Phelp's problem using CRRA.

Wednesday July 15

Notes on Discrete Approximation of Continuous State Finite Horizon MDPs

Notes on Bisection for Solving Non-linear functions, and Finite Differences Derivative Methods.

Notes on Quadrature Integration and Quadrature Grids

Notes on Drawing from arbitrary distributions: the Probability Integral Transform.

Notes on Monte Carlo and Quasi Monte Carlo Integration.

Link to the Matlab Programs to Solve the Finite Horizon Version of the Phelps Problem

Thursday July 17 and Friday July 17

Gourinchas and Parker (Ecta, 2002)

Notes on the estimation by Gourinchas and Parker (2002)

Notes on Life-Cycle Models.

Notes on Models with Income Uncertainty.

Zeldes 1989, QJE

Thursday July 16 and Friday July 17: Applications

Retirement Modeling

Rust and Phelan (Ecta, 1997).

* "Retirement and Social Security Reform Expectations: A Solution to the New Retirement Puzzle."

With Deb Dwyer, Frank Heiland, and Warren C. Sanderson.

Version of September 18, 2007. Rewrite and Resubmit stage at the Economic Journal

Download in pdf

*"The Social Security Earnings Test and Work Incentives,""

with Frank Heiland at Florida State University.

Journal of Policy Analysis and Management (JPAM), Vol. 26, No. 3, 527-555, (2007), plus appendix available in the online version.. Version of December 12, 2006.

Download in pdf

*"An Empirical Study of the Effects of Social Security Reforms on Claiming Behavior and Benefits Receipt Using Public-Use Administrative Micro Data"

This paper has also circulated under the title: "Actuarial Fairness, Retirement Benefits, Self-Selection, and Individual Heterogeneity"

with Na Yin (Baruch College-CUNY). Version of June 3, 2009. Accepted for publication in the peer reviewed section (Perspectives) of the Social Security Bulletin.

Download in pdf

Disability Modeling

* " Disability, Social Insurance, and Labor Force Attachment."

Submitted to the Journal of Policy Analysis and Management.

Version: September 28, 2008.

Download in pdf

* " Using a Life Cycle Model to Predict Induced Entry Effects of a $1 for $2 benefit offset in the SSDI Program."

Revision has been requested by JPAM (Journal of Policy Analysis and Management).

New Version: April 2006.

With John Rust (Maryland), and Moshe Buchinsky (UCLA).

Download in pdf

Health Investments

Ehrlich and Becker (JPE, 1972).

Ehrlich and Chuma (JPE, 1990).

Philipson and Becker (JPE, 1998).

Ehrlich (JHE, 2000, Vol. 19-3).

Ehrlich and Yin (Journal of Risk and Uncertainty, 2005. Vol 31-2).

*"Health Status and Health Dynamics in an Empirical Model of Expected Longevity."

with Huan Ni (Kennesaw State University), Journal of Health Economics , Volume 27, Issue 3, May 2008, Pages 564-584. Version of August 31, 2007. This version is the working paper version of the published piece, it is a bit longer (by 6 or 7 pages) since it includes two appendices and some more detailed references and discussions on a number of issues.

Download in pdf

If you have access to Elsevier journals online through ScienceDirect you can get the published version at

http://dx.doi.org/10.1016/j.jhealeco.2007.09.008

Other Applications

Belzil and Hansen on Returns to Education (Ecta, 2002).

Todd and Wolpin (AER, 2006). School Subsidies in Mexico

Ahn (ReStud, 1995). On the Value of Children

Montgomery on Contraception (JOURNAL OF BIOSOCIAL SCIENCE. SUPPLEMENT, 1989;Suppl 11:17-40.)

Journal of Randomized Social Experiments

Derivative Security Pricing

Programs on Security Pricing

A Final Discussion