This paper makes three contributions to the literature on program evaluation. First, we
construct a model that is well-suited to conduct equilibrium policy experiments and we
illustrate effectiveness of general equilibrium models as tools for the evaluation of social
programs. Second, we demonstrate the usefulness of social experiments as tools to evaluate
models. In this respect, our paper serves as the equilibrium analogue to LaLonde (1986) and
others, where experiments are used as a benchmark against which to assess the
performance of non-experimental estimators. Third, we apply our model to the study of the
Canadian Self-Sufficiency Project (SSP), an experiment providing generous financial
incentives to exit welfare and obtain stable employment. The model incorporates the main
features of many unemployment insurance and welfare programs, including eligibility criteria
and time-limited benefits, as well as the wage determination process. We first calibrate our
model to data on the control group and simulate the experiment within the model. The model
matches the welfare-to-work transition of the treatment group, providing support for our
model in this context. We then undertake an equilibrium evaluation of the SSP. Our results
highlight important feedback effects of the policy change, including displacement of
unemployed individuals, lower wages for workers receiving supplement payments and higher
wages for those not directly treated by the program. The results also highlight the incentives
of individuals to delay exit from welfare in order to qualify for the program. Together, the
feedback effects change the cost-benefit conclusions implied by the partial equilibrium
experimental evaluation substantially.
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