Demand and Welfare Analysis in Discrete Choice Models with Social Interactions

Debopam Bhattacharya, Pascaline Dupas and Shin Kanaya

Papers from arXiv.org

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 health-product 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 deadweight-loss 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.

Date: 2019-05, Revised 2024-05
New Economics Papers: this item is included in nep-bec, nep-dcm and nep-ure
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Citations: View citations in EconPapers (4)

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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 (2019)
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:arx:papers:1905.04028

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