Sensitivity analyses of the deterrence hypothesis: Let's keep the econ in econometrics

Learner and McManus applied Extreme Bound Analysis (EBA) in an empirical st udy of the deterrent effects of capital punishment and other penalties. The ir analysis has questioned the validity of the deterrence hypothesis. The t hrust of our paper is twofold: first, by applying EBA to well-known econome tric models of demand, production, and human-capital investment, our analys is exposes and illustrates the inherent flaws of EBA as a method of derivin g valid inferences about model specification. Second, since the analysis sh ows Leamer and McManus's inferences about deterrence to be based on a flawe d methodology, we offer an alternative, theory-based sensitivity analysis o f estimated deterrent effects using similar data. Our analysis supports the deterrence hypothesis. More generally, it emphasizes the indispensable rol e of theory in guiding sensitivity analyses of model specification.