On Using Linear Regressions in Welfare Economics

Shlomo Yitzhaki

Journal of Business & Economic Statistics, 1996, vol. 14, issue 4, 478-86

Abstract: It is argued that ordinary least squares regression coefficients are weighted average of slopes between adjacent sample points. When applied to linear regressions, with income as the independent variable, the coefficients depend heavily on the slopes of high income groups. This may be undesirable, if the regression is used for welfare analysis, because the marginal propensities to consume attributed to the commodities are determined by the high-income groups. Alternative estimators that enable the investigator to control the weighting scheme and to incorporate his social views into the weighting scheme of the estimators are proposed.

Date: 1996
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