Volume 37, Number 3 (Summer) 2002
Keane, Michael P. and Kenneth I. Wolpin. 2002. "Estimating Welfare Effects Consistent with Forward-Looking Behavior. Part I: Lessons from a Simulation Exercise." Journal of Human Resources 37(3):570-599.
An extensive literature in economics seeks to determine the quantitative impact of welfare benefits on economic and demographic behaviors. Most studies adopt a static choice framework to motivate their empirical specifications. The behaviors that are studied, however. have both immediate and long-term consequences. If potential welfare recipients are forward looking. they will consider these long-term consequences when making current decisions. In this paper we investigate the implications of the existence of forward-looking behavior for estimation methodology. In the companion paper that follows. we estimate the effect of welfare on those decisions adopting an empirical specification that is consistent with forward-looking behavior and interpretable within that framework.
Michael P. Keane is a professor of economics at Yale University. Kenneth I. Wolpin is a professor of economics at the University of Pennsylvania. The authors are grateful for support from NICHD under grant no. HD-34019. Morris Davis provided excellent research advice. The data used in this article can be obtained beginning November 2002 through October 2005 from Kenneth 1. Wolpin. Department of Economics. University of Pennsylvania. 3718 Locust Walk. Philadelphia. PA 19104.
© 2003 by the Board of Regents of the University of Wisconsin System
US ISSN 0022-166X