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“Structural vs. Reduced Form”

Structural vs. Reduced Form Language, Confusion, and Modelsin Empirical EconomicsPhil HaileNovember 20211 Types of Empirical Economics?1. Measurement how much do prices change with the number of competitors? how has productivity ( , TFP) in the auto industrychanged over the last 30 years? what is the effect of college attendance on expected wage? what is the elasticity of demand for health insurance in MA?2. Model Testing is there moral hazard in auto insurance? does BNE explain bidding at oil auctions? do actual contracts resemble optimal contracts?3. Model Estimation for Counterfactuals how much would prices rise two firms merged?

quality, and ϵ is a cost shock (unobserved shifter of costs) •demand D (p,t, η), where p is price, η is a demand shock •taking (t, ϵ, η) as given, solve for eqm price and quantity: p∗(t, ϵ, η) q∗(t, ϵ, η) = D (p∗(t, ϵ, η),t, η) The theorist’s reduced forms are p∗(t, ϵ, η) and q∗(t, ϵ, η).

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