Demand and Welfare Analysis in Discrete Choice Models with Social Interactions

Debopam Bhattacharya, Pascaline Dupas and Shin Kanaya

CREATES Research Papers from Department of Economics and Business Economics, Aarhus University

Abstract: Many real-life settings of consumer-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 healthproduct adoption and vouchers for attending a high-achieving school. We establish the connection between econometrics of large games and Brock-Durlauf-type interaction models, under both I.I.D. and spatially correlated unobservables. We develop new convergence results for associated beliefs and estimates of preference-parameters under increasing-domain spatial asymptotics. Next, 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 deadweightloss from a policy-intervention. Standard index-restrictions imply distribution-free bounds on welfare. We illustrate our results using experimental data on mosquito-net adoption in rural Kenya.

Keywords: Policy targeting; welfare analysis; social interaction; spillover; externality; convergence of Bayesian-Nash equilibria; spatial dependence; Kenya (search for similar items in EconPapers)
JEL-codes: C01 H23 H4 H51 I38 O1 (search for similar items in EconPapers)
Pages: 87
Date: 2019-04-26
New Economics Papers: this item is included in nep-bec, nep-dcm, nep-gth, nep-hea and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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https://repec.econ.au.dk/repec/creates/rp/19/rp19_09.pdf (application/pdf)

Related works:
Journal Article: Demand and Welfare Analysis in Discrete Choice Models with Social Interactions (2024)
Working Paper: Demand and Welfare Analysis in Discrete Choice Models with Social Interactions (2024)
Working Paper: Demand and Welfare Analysis in Discrete Choice Models with Social Interactions (2019)
Working Paper: Demand and Welfare Analysis in Discrete Choice Models with Social Interactions (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:aah:create:2019-09

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