The Economics and Econometrics of Evidence-Based Policy

• Credit value: 15 credits at Level 7
• Convenor and tutor: Daniel Kaliski
• Prerequisite: Microeconomics module
• Assessment: a two-hour examination (100%)

This module will enable you to assess various rationales for public intervention in economic activity; to examine the range of intervention in modern developed economies; evaluate the success and failure of programmes through careful econometric analysis of available evidence, or generating new evidence through RCTs; and to construct a template for better design of evidence-based policy. It will appeal especially to students working, or planning to work, in Whitehall departments, other public-sector organisations or private consultancies that engage with the public sector.

Indicative module syllabus

• The Economics of Government Programmes and Taxation
• Reasons for government involvement in markets: market failure; redistribution; social insurance
• Transfer programs: universal transfers (UBI); means testing; targeting of subpopulations; incentive effects: labour supply/fertility
• Social insurance: unemployment insurance; health insurance; problems: moral hazard/adverse selection/advantageous selection
• Optimal taxation: of labour income; of commodities; of capital income

• The Econometrics of Programme Evaluation
• The logic of randomised controlled trials: counterfactuals and potential outcomes; treatment effects; field experiments; distributional treatment effects
• Economic theory and RCTs: role of theory in interpreting experimental estimates; relationship of experimental estimates to behavioral elasticities of interest; natural experiments
• Bunching estimators in the study of optimal taxation: labour supply; revenue maximisation
• Regression-discontinuity designs
• Difference-in-differences
• Instrumental variables: policy variation as an IV; assignment as an IV for take-up; potential pitfalls: weak identification/correlations among the instruments/violation of underlying assumptions

By the end of this module, you will be able to:

• explain the rationales for public intervention in economic activity
• outline the qualitative differences between different categories of public interventions
• understand the strengths and weaknesses of RCTs, be able to design them and interpret their findings
• understand the range of other econometric techniques that can be deployed for evaluating public programmes
• design your own empirical studies using quasi-experimental methods
• explain the importance of evidence in policy design, and in the process improve public policy
• read and understand economics papers relevant to policy questions of interest
• show awareness of the theoretical assumptions underlying an inference from data.