Empirical welfare analysis for discrete choice: Some general results
The Econometric Society
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Bhattacharya, D. (2018). Empirical welfare analysis for discrete choice: Some general results. Quantitative Economics, 9 (2), 571-615. https://doi.org/10.3982/QE931
This paper develops nonparametric methods for welfare-analysis of economic changes in the common setting of multinomial choice. The results cover (a) simultaneous price-change of multiple alternatives, (b) introduction/elimination of an option, (c) changes in choice-characteristics, and (d) choice among non-exclusive alternatives. In these cases, Marshallian consumer surplus becomes path-dependent, but Hicksian welfare remains well-defined. We demonstrate that under completely unrestricted preference-heterogeneity and income-effects, the distributions of Hicksian welfare are point-identified from structural choice-probabilities in scenarios (a), (b), and only set-identified in (c), (d). In program-evaluation contexts, our results enable the calculation of compensated-effects, i.e. the program's cash-equivalent and resulting deadweight-loss. They also facilitate theoretically justified cost-benefit comparison of interventions targeting different outcomes, e.g. a tuition-subsidy and a health-product subsidy. Welfare-analyses under endogeneity is briefly discussed. An application to data on choice of fishing-mode illustrates the methods.
This project has received funding from the European Research Council (ERC) under the European Union’s Horizon 2020 research and innovation programme (grant agreement No. 681565).
European Research Council (681565)
External DOI: https://doi.org/10.3982/QE931
This record's URL: https://www.repository.cam.ac.uk/handle/1810/279765
Attribution-NonCommercial 4.0 International (CC BY-NC 4.0)