Nonparametric Welfare Analysis for Discrete Choice

Debopam Bhattacharya

No 669, Economics Series Working Papers from University of Oxford, Department of Economics

Abstract: Abstract: We consider empirical measurement of exact equivalent/compensating variation resulting from price-change of a discrete good, using individual-level data. We show that for binary and multinomial choice, the marginal distributions of EV/CV are nonparametrically point-identified solely from the conditional choice-probabilities, under extremely general preference-distributions. These results hold even when the distribution/dimension of unobserved heterogeneity are neither specified, nor identified and utilities are neither quasi-linear nor parametrically specified. Welfare-distributions can be expressed as closed-form functionals of observable individual choice-probabilities, thus enabling easy computation in applications. Average EV for price-rise equals the change in average consumer-surplus and is smaller than average CV for a normal good. Point-identification fails for ordered choice if the unit-price is identical for all alternatives, thereby providing a connection to Hausman-Newey's (2013) partial identification results for the limiting case of continuous choice.

Keywords: Multinimial choice; Compensating and equivalent variation; unobserved heterogeneity; unrestricted heterogeneity; deadweight loss (search for similar items in EconPapers)
JEL-codes: C14 C25 D11 D12 (search for similar items in EconPapers)
Date: 2013-07-23
New Economics Papers: this item is included in nep-dcm and nep-upt
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Citations: View citations in EconPapers (1)

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Journal Article: Nonparametric Welfare Analysis for Discrete Choice (2015)
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