Using Firm Closures as Natural Experiments to Estimate Job Loss Costs

Lazear and Co-authors' Study on Employment Rents and Productivity During a Recession

Unexpected Inheritance as a Natural Experiment for Credit Constraints

Credit Card Limit Increases as a Natural Experiment for Credit Constraints

A city government decides to boost local economies by offering a one-time subsidy to all restaurants located in a specific district that has historically experienced low foot traffic. An economist compares the revenue of restaurants inside this district to the revenue of restaurants in an adjacent district one year after the subsidy was provided. Why is this research design a potentially flawed application of the natural experiment method to determine the causal effect of the subsidy?

Evaluating a Research Design

Identifying the Components of a Natural Experiment

A government unexpectedly bans the use of a highly efficient, but environmentally damaging, type of fishing net in one of two adjacent coastal regions. Both regions have similar fish populations and market conditions. An economist plans to study the impact of this ban on fishermen's average income by comparing the income in the region with the ban to the income in the region without it. Which of the following statements provides the strongest justification for why this scenario constitutes a valid natural experiment?

An economist observes that after a state unexpectedly passes a law increasing the minimum wage, employment in low-wage sectors falls more in that state compared to a neighboring state with no change in its minimum wage law. The economist concludes that the minimum wage increase caused the job losses. Which of the following, if true, would most seriously weaken the economist's conclusion drawn from this natural experiment?

Analyze the following research scenarios. Match each scenario with the statement that best describes its validity as a natural experiment for isolating a specific causal effect.

An economist wants to measure the causal impact of improved public transportation on local property values. They identify a neighborhood where a new subway station was recently built and compare the change in property values in that neighborhood over five years to the change in a similar neighborhood that did not receive a new station. The economist claims this setup constitutes a valid natural experiment. Which of the following statements identifies the most critical flaw in this research design?

An economist wants to isolate the causal effect of an increase in family size on household savings. Which of the following scenarios provides the most valid natural experiment to study this effect?

Designing a Natural Experiment for Policy Analysis

A large corporation introduces a voluntary, company-funded financial wellness program. To measure its effectiveness, an economist compares the average savings rate of employees who chose to participate in the program with the average savings rate of those who did not. This research design is a valid example of a natural experiment.