Nobel Prize winner: Heckman part 2

Self-selection: ex married women in labor force Heckman 1974

Market wage w

Work if w > w*

Reservation wage w*: wage at which willing to work

Data on wages:
--> Only observations w for working women (w > w)
-->  No information on w for non-working women (w < w)

Solution two-step estimation:
--> Estimate first whether women works, then – for those women working – estimate determinants of wages

Self-selection bias

Chicago School
 Policy evaluation: so against laissez-faire of his Chicago colleagues

Earlier econometricians
 Building on existing methods and techniques

Classicals
 Rational, self-interested behavior

Econometrics evolving

Econometrics evolving:Econometric models prove nothing.
Development of new caveats and new techniques:

Empirical research goes back a long time.

Example: Cournot’s “Law of Demand”

no serious discussion on how economic theories
could be systematically tested.

Lack of mathematical formulations in early years

Collect data on prices and quantities in a market

Potential problems:
-->  Cross-section or time-series data  -->Other influencing factors

--> More sophisticated methods needed!

--> Econometrics was born

Tinbergen + Frisch (1969 NP)
 Applying statistics to economics = econometrics

Haavelmo (1989 NP)
 Highlighting identification problem + simultaneity problem

Granger + Engle (2003 NP)
 Methods for time series analyses

McFadden + Heckman (2000 NP)
 Discrete choice analysis + self-selection correction

Ragnar Frisch and Jan Tinbergen

1969 NP: “for having developed and applied dynamic models for the analysis of economic processes”.

Contributions:

  1. Pioneering work on econometric model building
  2. Theories for stabilization policy and long-term economic planning

Adopted mathematical and statistical methods in economic research.