Evaluating Local Policies in Centralized Markets

TL;DR

This paper introduces a method to evaluate the impact of marginal policy reforms in centralized markets by constructing an equilibrium-adjusted outcome, enabling nonparametric identification of policy effects without extra policy variation.

Contribution

It develops a novel approach to identify the Marginal Policy Effect using equilibrium-adjusted outcomes, linking policy evaluation with the Marginal Treatment Effects literature.

Findings

The Marginal Policy Effect is nonparametrically identified from baseline data.

Constructed equilibrium-adjusted outcomes incorporate externalities among agents.

The method provides a flexible tool for optimal policy targeting.

Abstract

We study a policy evaluation problem in centralized markets. We show that the aggregate impact of any marginal reform, the Marginal Policy Effect (MPE), is nonparametrically identified using data from a baseline equilibrium, without additional variation in the policy rule. We achieve this by constructing the equilibrium-adjusted outcome: a policy-invariant structural object that augments an agent's outcome with the full equilibrium externality their participation imposes on others. We show that these externalities can be constructed using estimands that are already common in empirical work. The MPE is identified as the covariance between our structural outcome and the reform's direction, providing a flexible tool for optimal policy targeting and a novel bridge to the Marginal Treatment Effects literature.