Economic Modeling
Why models? In the natural sciences it is possible to conduct a series of experiments to test theories because the laws of nature presumably stay constant and there are no human policy interventions that can seriously affect them. Thus, measurements can be repeated with different experimental settings treating data points as independent observations. Each historic data point in economics by definition is unique and not repeatable. The only way to get a different data generating process is to use models. Thus, instead of varying experimental conditions, a set of models is applied to look at data from different angles, getting a better understanding of the many factors underlying observable outcomes.
For example, a model of occupation choice used by the Enterprise Initiative's researchers considers alternative scenarios for entrepreneurial growth under different credit conditions in specific geographical areas, or uses the same credit conditions to study the distribution of entrepreneurial talent.
Another model used extensively in the Initiative’s research is Applied General Equilibrium Enterprise Economics, or AGE-3. This model uses both micro and macro data to examine the role of entrepreneurship in an economy as a whole, particularly as it affects efficiency and welfare. For an overview of the AGE-3 project, please visit http://age3.uchicago.edu/public/Presentation.html.
To watch relevant lectures given by the Initiative's researchers, please visit http://enterpriseinitiative.org/Arete/ModelingLecture.aspx.
For a brief list of readings utilizing the economic models mentioned here and others, please visit http://enterpriseinitiative.org/Arete/ModelingReading.aspx.