The Philosophy of Causality in Economics: Causal Inferences and Policy Proposals PhD thesis prepared under the supervision of prof. dr hab. Stanisław Czaja Mariusz Maziarz - 1 - The List of Contents Preface and acknowledgment ......................................................................................................... 5 1. Introduction ............................................................................................................................... 12 1.1 The meaning of causality .................................................................................................... 13 1.2 On referentialist semantics, case studies, and the choice of sample ................................... 15 1.3 The structure of the book .................................................................................................... 18 2. Regularities ............................................................................................................................... 24 2.1 Reducing causality to constant conjunctions ...................................................................... 24 2.1.1 From constant conjunctions to the regularity view of laws .......................................... 26 2.1.2 Further developments ................................................................................................... 29 2.1.3 Criticism and rejection of the regularity view .............................................................. 30 2.1.4 The regularity approach in the philosophy of economics ............................................ 31 2.2 Establishing constant regularities ........................................................................................ 40 2.2.1 Econometric research ................................................................................................... 41 2.2.2 Cliometrics ................................................................................................................... 51 2.2.3 Other methods .............................................................................................................. 59 2.3 Policymaking on the basis of regularities ........................................................................... 60 2.3.1 Cliometric results and (failed) interventions ................................................................ 60 2.3.2 Is theory-driven econometrics more reliable? .............................................................. 64 2.4 You shall not translate causal claims .................................................................................. 68 3. Causality as changes in conditional probability ....................................................................... 79 3.1 Probabilistic theories of causality ....................................................................................... 80 3.2.1 The menu of probabilistic definitions ........................................................................... 80 3.1.2 Criticism and further differences .................................................................................. 85 3.1.3 Probabilistic causality in the philosophy of economics ............................................... 90 3.2 Testing for probabilistic dependencies................................................................................ 94 3.2.1 Causal inference from time-series data ........................................................................ 95 3.2.2 Atheoretical, cross-sectional models .......................................................................... 103 3.3 The common-cause fallacy and policy actions ................................................................. 108 - 2 - 3.4 Policymaking based on limited knowledge of causal structure ........................................ 113 4. Counterfactuals ....................................................................................................................... 121 4.1 Counterfactual conditionals and causality ........................................................................ 121 4.1.1 Classical formulation .................................................................................................. 122 4.1.2 Recent developments .................................................................................................. 124 4.1.3 Counterfactuals in the philosophy of economics ........................................................ 125 4.1.4 Philosophical views on inferring counterfactuals ....................................................... 127 4.2 Counterfactuals and causal inference in economics .......................................................... 133 4.2.1 What would be the level of economic development if a stimulus were not introduced?133 4.2.2 Case study of the influence of intellectual property on R&D .................................... 137 4.3 Counterfactuals and economic policymaking ................................................................... 140 4.4 Counterfactuals for the sake of knowledge or policymaking? .......................................... 145 5. Mechanisms ............................................................................................................................ 151 5.1 The mechanistic theories of causality ............................................................................... 152 5.1.1 What is a causal mechanism? ..................................................................................... 153 5.1.2 What are the mechanisms suitable for? ...................................................................... 156 5.1.3 Mechanisms in the philosophy of economics ............................................................. 159 5.2 Developing mechanistic models ....................................................................................... 170 5.2.1 A purely theoretical model ......................................................................................... 171 5.2.2 Calibrated theoretical models ..................................................................................... 175 5.2.3 The DSGE framework ................................................................................................ 180 5.2.4 Qualitative inference of mechanisms ......................................................................... 186 5.3 Using mechanistic evidence for policy ............................................................................. 189 5.3.1 From possibility to actuality: mechanist’s circle ........................................................ 189 5.3.2 Actual mechanisms and external influences ............................................................... 195 5.3.3 The advantage of mechanistic evidence ..................................................................... 197 5.4 Mechanisms as evidence for institutional reforms ............................................................ 199 6. Interventions and manipulability ............................................................................................ 212 6.1 The manipulationist theories and philosophical problems of experimentation ................ 213 6.1.1 Manipulationist theories and their pitfalls .................................................................. 213 6.1.2 The manipulability account in economic methodology ............................................. 224 - 3 - 6.2 Experimental and quasi-experimental research designs in economics ............................. 239 6.2.1 Instrumental variable (IV) estimation as a quasi-experiment ..................................... 240 6.2.2 Natural experiments: regression discontinuity design ................................................ 242 6.2.3 Laboratory experiments .............................................................................................. 245 6.2.4 Randomized field experiments ................................................................................... 248 6.3 Is extrapolation from experimental studies always problematic? ................................. 250 6.3.1 Causal structures and populations .............................................................................. 251 6.3.2 The two types of extrapolation ................................................................................... 252 6.3.3 Toward contextualized experimental evidence .......................................................... 252 6.4 Manipulationist evidence and interventions...................................................................... 254 7. Concluding remarks ................................................................................................................ 265 7.1 Causal pluralism in economics .......................................................................................... 265 7.2 The meaning of causal claims and translation for policymaking ...................................... 268 7.3 Further research ................................................................................................................. 269 - 4 - Preface and acknowledgment Did you have a drink last night? According to the recent Lancet study (Alcohol Collaborators 2018) that made headlines worldwide, the enjoyable glass of wine is a significant cause of premature death. This study is an excellent example of the difficulties connected to drawing causal conclusions from observational data. Considering this widely discussed topic can shed light on the difficulty of causal inference in economics because every