April 2003

IZA DP No. 767: Estimating Distributions of Treatment Effects with an Application to the Returns to Schooling and Measurement of the Effects of Uncertainty on College Choice

Pedro Carneiro, Karsten T. Hansen, James J. Heckman

published in: International Economic Review, 2003, 44 (2), 361-422

This paper uses factor models to identify and estimate distributions of counterfactuals. We extend LISREL frameworks to a dynamic treatment effect setting, extending matching to account for unobserved conditioning variables. Using these models, we can identify all pairwise and joint treatment effects. We apply these methods to a model of schooling and determine the intrinsic uncertainty facing agents at the time they make their decisions about enrollment in school. Reducing uncertainty in returns raises college enrollment. We go beyond the “Veil of Ignorance” in evaluating educational policies and determine who benefits and loses from commonly proposed educational reforms.