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Lecture 2

ECON 30801 Lecture Notes - Lecture 2: Randomized Controlled Trial, Treatment And Control Groups, Bookkeeping

Course Code
ECON 30801

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I. Objective Policy Measurement
A. Thinking on the margin
1. Opportunity costs measure
2. $ spent on unproductive interventions cannot be spent elsewhere
3. On net, has a negative impact on the world if you spend money on bad
B. One objective measure: Randomized Controlled Trial (RCT)
1. Randomization allows you to create a control group
2. Compare outcomes → gives you the causal effect on average person
C. Basic Set-up → RCT
1. Come up with a policy to test
2. Find population to test on
3. Collect baseline data
4. Randomize
a) Treatment group: gets intervention
b) Control group: gets no intervention
c) At what level do you want to randomize → cities, businesses,
individuals, etc.
d) Did the randomization work? Do the groups look different
5. Compare the endline data
6. Difference in Differences approach
D. RCT Example
1. Seemingly large problem among microenterprises: Terribly run
a) Lack managerial capital
b) Note: this shows up in TFP!!!!
2. Researchers from World Bank conducted surveys of business practices
and correlated them with sales among SMEs (small and medium
a) Bookkeeping, advertising, budgeting, compare prices and
products to competitors, etc.
b) Correlated them with sales
c) Does using more business practices cause your sales to go up, or
does higher sales force you to and increase the importance of
business skills?
3. Let's say for a minute that business practices drive sales, really important
and needed for business
a) Formal training classes are held all over the world → the World
Bank alone has spent $9 billion over the past few years on these
training classes for microenterprises
b) SME owners enter a class, learn business skills, see whether or
not it increases profitability
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