Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/235441 
Year of Publication: 
2021
Series/Report no.: 
CESifo Working Paper No. 9071
Publisher: 
Center for Economic Studies and Ifo Institute (CESifo), Munich
Abstract: 
Empirical welfare analyses often impose stringent parametric assumptions on individuals’ preferences and neglect unobserved preference heterogeneity. In this paper, we develop a framework to conduct individual and social welfare analysis for discrete choice that does not suffer from these drawbacks. We first adapt the broad class of individual welfare measures introduced by Fleurbaey (2009) to settings where individual choice is discrete. Allowing for unrestricted, unobserved preference heterogeneity, these measures become random variables. We then show that the distribution of these objects can be derived from choice probabilities, which can be estimated nonparametrically from cross-sectional data. In addition, we derive nonparametric results for the joint distribution of welfare and welfare differences, as well as for social welfare. The former is an important tool in determining whether those who benefit from a price change belong disproportionately to those who were initially well-off. An empirical application illustrates the methods.
Subjects: 
discrete choice
nonparametric welfare analysis
individual welfare
social welfare
money metric utility
compensating variation
equivalent variation
JEL: 
C14
C35
D12
D63
H22
I31
Document Type: 
Working Paper
Appears in Collections:

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.