Demand and Welfare Analysis in Discrete Choice Models with Social Interactions
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Authors
Bhattacharya, D.
Dupas, P.
Kanaya, S.
Publication Date
2018-04-01Series
Cambridge Working Papers in Economics
Publisher
Faculty of Economics, University of Cambridge
Type
Working Paper
Metadata
Show full item recordCitation
Bhattacharya, D., Dupas, P., & Kanaya, S. (2018). Demand and Welfare Analysis in Discrete Choice Models with Social Interactions. https://doi.org/10.17863/CAM.86212
Abstract
Many real-life settings of individual choice involve social interactions, causing targeted policies to have spillover effects. This paper develops novel empirical tools for analyzing demand and welfare effects of policy interventions in binary choice settings with social interactions. Examples include subsidies for health product adoption and vouchers for attending a high-achieving school. We show that even with fully parametric specifications and unique equilibrium, choice data, that are sufficient for counterfactual demand prediction under interactions, are insufficient for welfare calculations. This is because distinct underlying mechanisms producing the same interaction coefficient can imply different welfare effects and deadweight-loss from a policy intervention. Standard index restrictions imply distribution-free bounds on welfare. We propose ways to identify and consistently estimate the structural parameters and welfare bounds allowing for unobserved group effects that are potentially correlated with observables and are possibly unbounded. We illustrate our results using experimental data on mosquito-net adoption in rural Kenya.
Identifiers
CWPE1885
This record's DOI: https://doi.org/10.17863/CAM.86212
This record's URL: https://www.repository.cam.ac.uk/handle/1810/338805
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