1 Reduced-form studies have identified a variety of important empirical regularities, especially in labor, public, and development economics. These researchers instead advocate reduced-form strategies that estimate statistical relationships, placing priority on the identification of causal effects using research designs that exploit quasi-experimental variation. This powerful methodology has been applied to an array of topics, ranging from the design of tax and transfer policies in public finance to the sources of inequality in labor economics and antitrust policy in industrial organization.Д¬ritics of the structural approach argue that it is difficult to identify all primitive parameters in an empirically compelling manner because of selection effects, simultaneity bias, and omitted variables. Armed with the fully estimated model, these studies then simulate the effects of changes in policies and the economic environment on behavior and welfare. The structural approach specifies complete models of economic behavior and estimates or calibrates the primitives of such models. The division between structural and reduced-form methods has split the economics profession into two camps whose research programs have evolved almost independently despite focusing on similar questions.

There are two competing paradigms for policy evaluation and welfare analysis in economics: the structural approach and the reduced-form approach (also known as the program-evaluation or treatment-effect approach). Finally, I discuss problems in macroeconomics, labor, development, and industrial organization that could be tackled using the sufficient statistic approach. I use this framework to synthesize the modern literature on taxation, social insurance, and behavioral welfare economics. I present a general framework that shows how many policy questions can be answered by estimating a small set of sufficient statistics using program-evaluation methods. This literature has developed formulas for the welfare consequences of various policies that are functions of reduced-form elasticities rather than structural primitives. This article reviews a recent literature in public economics that combines the advantages of reduced-form strategies-transparent and credible identification-with an important advantage of structural models-the ability to make predictions about counterfactual outcomes and welfare. The debate between structural and reduced-form approaches has generated substantial controversy in applied economics.

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