Estimating distributions of counterfactuals with an application to the returns to schooling and measurement of the effect of uncertainty on schooling choice

This article uses factor models to identify and estimate the distributions of counterfactuals. We extend LISREL frameworks to a dynamic treatment effect setting, extending matching to account for unobserved conditioning variables. Using these models, we can identify all pairwise and joint treatment effects. We apply these methods to a model of schooling and determine the intrinsic uncertainty facing agents at the time they make their decisions about enrollment in school. We go beyond the “Veil of Ignorance” in evaluating educational policies and determine who benefits and who loses from commonly proposed educational reforms.