Testing Search Theory with Reemployment Bonus Experiments: Cross-Validation of Results from New Jersey and Illinois

Abstract

This paper assesses the ability of a simple search—theoretic model to explain the results of two controlled reemployment bonus experiments. The availability of two independent experiments with substantially different treatments allows for a rigorous test of the model. Parameters of the model are estimated by minimizing the distance between the observed and predicted aggregate response in each experiment, then cross-validated using the observed and predicted treatment response from the other experiment. The model is unable to predict an effect as large as that observed in one of the experiments. In addition, the model cannot explain the degree of individual—specific wage variability found in the data. The relative success of models with and without variable search intensity is also considered, but the statistical procedures cannot distinguish between them.