CEA Policy Evaluation and Analysis 2 — Questions and Answers
Question 1: Which evaluation design is considered the 'gold standard' for establishing causal policy impact?
- Interrupted time series
- Randomized controlled trial (Correct answer)
- Difference-in-differences
- Regression discontinuity
Correct answer: Randomized controlled trial
Randomized controlled trials randomly assign units to treatment and control groups, eliminating selection bias and establishing true causal inference.
Question 2: A regression discontinuity design (RDD) identifies causal effects by exploiting:
- Random variation in program enrollment
- A threshold rule that determines treatment eligibility (Correct answer)
- Pre-post differences within the same group
- Parallel trends between treated and untreated units
Correct answer: A threshold rule that determines treatment eligibility
RDD compares outcomes for units just above and just below a cutoff threshold, treating assignment near the threshold as quasi-random.
Question 3: In cost-benefit analysis, the 'shadow price' of a non-marketed good refers to:
- The market price minus taxes
- The implicit value derived from revealed or stated preferences (Correct answer)
- The cost of producing a close substitute
- The price that would prevail under perfect competition
Correct answer: The implicit value derived from revealed or stated preferences
Shadow prices capture the social opportunity cost or willingness to pay for goods without observable market prices, using revealed or stated preference methods.
Question 4: The 'displacement effect' in program evaluation refers to:
- Participants moving to new geographic areas after treatment
- Program benefits crowding out private-sector activity (Correct answer)
- Survey respondents shifting answers based on question order
- Treated units reducing effort in anticipation of assistance
Correct answer: Program benefits crowding out private-sector activity
Displacement occurs when subsidized jobs or activity simply replace unsubsidized equivalents, reducing net social gain from the program.
Question 5: Which of the following best describes an 'instrumental variable' in policy evaluation?
- A variable that directly measures program outcomes
- A variable correlated with treatment but not directly with the outcome (Correct answer)
- A control variable included to reduce omitted variable bias
- A lagged dependent variable used to capture dynamics
Correct answer: A variable correlated with treatment but not directly with the outcome
An instrument is correlated with the endogenous treatment variable but affects the outcome only through its effect on treatment, satisfying the exclusion restriction.
Question 6: When evaluating a job-training program, the 'Ashenfelter's dip' phenomenon implies:
- Participants experience wage growth immediately after enrollment
- Pre-program earnings of participants temporarily decline, biasing naïve comparisons (Correct answer)
- Control group earnings fall due to general economic downturns
- Program effects diminish sharply after two years of treatment
Correct answer: Pre-program earnings of participants temporarily decline, biasing naïve comparisons
Ashenfelter's dip is the pre-enrollment earnings decline that attracts participants to training programs, making simple before-after comparisons overstate program impacts.
Question 7: The 'intention-to-treat' (ITT) estimate in a randomized evaluation measures:
- The effect of actually receiving treatment on participants
- The effect of being assigned to treatment regardless of actual take-up (Correct answer)
- The effect on the subgroup most likely to benefit from the program
- The long-run equilibrium effect after full program scale-up
Correct answer: The effect of being assigned to treatment regardless of actual take-up
ITT compares average outcomes by assignment status, preserving randomization validity even when some assignees do not take up the treatment.
CEA Policy Evaluation and Analysis 2
Which evaluation design is considered the 'gold standard' for establishing causal policy impact?