WP 2011-11 Experimental Methods and the Welfare Evaluations of Policy Lotteries

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Published in 2011 in European Review of Agricultural Economics, Volume 38, Issue 3.

AUTHOR: Glenn W. Harrison

ABSTRACT. Policies impose lotteries of outcomes on individuals, since we never know exactly what the effects of the policy will be. In order to evaluate alternative policies, we need to make assumptions about individual preferences, even before social welfare functions are applied. There are two broad ways in which experimental methods are used to evaluate policy. One is to use experiments to estimate individual preferences, valuations and beliefs and use those estimates as priors in policy evaluation. The other is to use randomisation to infer the effects of policy. The strengths, weaknesses and complementarities of these approaches are reviewed.