Completing the revolution : Enhancing the reality, the principles, and the impact of economics' credibility revolution

Introduction

Applied economists routinely evaluate the effect of economic policies. For instance, what is the effect of raising the minimum wage on employment? Angrist & Pischke (2010) argue that applied economics has recently experienced a "credibility revolution": by switching to transparent methods to evaluate policies, applied economists have increased the credibility of their findings and the impact of their work.

Credibility Revolution

In the first part of this proposal, I show that the credibility revolution is not complete. Two-way fixed effects regression, a policy-evaluation method used in as many as 26% of the most highly cited papers recently published in the American Economic Review, relies on the assumption that the policy's effect is constant across units and over time.

In most applications, this assumption is not credible. Therefore, I propose a series of new differences-in-differences estimators that do not rely on this constant effect assumption and that can be used in virtually all the applications where two-way fixed effects regressions have been used.

Bias and Variance Trade-off

In the second part of this proposal, I argue that the credibility revolution's focus on unbiased estimators may be hard to defend, as variance also matters. I explore two ways of trading off bias and variance:

1. Combining an unbiased and a biased but potentially more efficient estimator of the same parameter.
2. Deriving the minimax estimator of the policy's effect, under the assumption that this effect cannot be larger than a (potentially large) constant B.

Investigating the Impact

Finally, the third part investigates the potential impact of the "credibility revolution." Specifically, I will run a randomized controlled trial to measure the effect of following an online course presenting policy evaluations, in two very different populations:

• Policy makers
• Members of the general public, focusing on individuals with a low trust in institutions in that second group.