In recent years, the dominant econometric method has been instrumental variables; there is much to the jibe that students no longer look for a thesis topic, but for an instrument. As instruments have become ever more baroque, and their justifications ever more strained, and in the face of deeply serious critiques, particularly by Jim Heckman, the popularity of the method seems finally to be on the wane. In its place, there is a fast growing effort to replace econometric methodology, which can be thought of as a set of ex post fixes for non-experimental data, with real experiments, which require no such fix, and whose results are thereby transparent and convincing. There is lively work in laboratory and field experiments, often to test theoretical propositions, fed and encouraged by the growing collaboration between economics and psychology. But nothing has expanded so rapidly as the Poverty Action Lab at MIT, now the Abdul Latif Jamil Poverty Action Lab (J-PAL), founded in 2003 by Esther Duflo, Abhijit Banerjee, and Sendhil Mullainathan (now at Harvard.) Born of a frustration with the inherent unreliability of econometric work, as well as by a perceived failure of the World Bank and other development agencies to seriously evaluate their project work, J-PAL runs an extensive program of randomized controlled trials (RCTs) to evaluate social programs of many kinds, focusing mostly on health and education in poor countries, but with an eclectic overall portfolio of topics. J-PAL has got off to a flying start. It has projects in a dozen or so countries, this year it had vacancies for more than two dozen senior and junior people, and it is currently advertising a five-day course that teaches how to undertake social RCTs, at a cost of $3,950 a head. And the use of RCTs among graduate students and young assistant professors is expanding like wildfire; one Princeton student even persuaded a Mexican city to pave a random selection of its streets.
The movement is not modest in its claims, and it has attracted a good deal of acclaim from outside the profession. Banerjee has argued that the World Bank should cease to fund any activity (including presumably macro policy advice) that has not been previously subject to evaluation by an appropriate RCT. Among other plaudits in the press, The Lancet, noted that “The World Bank is finally embracing science” (if only The Lancet would do the same in its treatment of economic issues!) and praised J-PAL for its role in pressing the Bank in that direction. There is much to be excited about in this program. J-PAL and other experimental researchers have come up with several surprising results that upset previous beliefs. And by replicating similar experiments in different settings they are beginning to create an impressive and valuable body of evidence. As might be expected in the first flush of enthusiasm, there has to date been less attention to some of the problems that have bedeviled RCTs in medicine, such as their limited value to physicians in practice, nor to the extent to which RCTs really do solve the standard problems of econometric analysis. (Indeed, many RCT papers subject their experimental results to various econometric corrections and analyses.) And the jury is still out on whether RCTs are any better than large data sets as substitutes for theory.
In the end, it is hard not to think that the quality of research owes more to people than to methods. Certainly, the best of the job market candidates this year made important advances and showed great imagination and skill, irrespective of the unresolved methodological debates that divide the profession. Given this abundant talent, and the new-found (or re-found) commitment of young economists to the great issues of poverty and health around the world, there is surely no fear for the future of economics. And perhaps one day soon, there will once again be a closer dialogue between theory and application.
Related;
A premier on instrumental variables
Are Health, Wealth and Happiness Linked Worldwide?
Global Patterns of Income and Health: Facts, Interpretations, and Policies
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