Incorporating Social Welfare in Program-Evaluation and Treatment Choice

Debopam Bhattacharya and Tatiana Komarova

Papers from arXiv.org

Abstract: The econometric literature on treatment-effects typically takes functionals of outcome-distributions as `social welfare' and ignores program-impacts on unobserved utilities. We show how to incorporate aggregate utility within econometric program-evaluation and optimal treatment-targeting for a heterogenous population. In the practically important setting of discrete-choice, under unrestricted preference-heterogeneity and income-effects, the indirect-utility distribution becomes a closed-form functional of average demand. This enables nonparametric cost-benefit analysis of policy-interventions and their optimal targeting based on planners' redistributional preferences. For ordered/continuous choice, utility-distributions can be bounded. Our methods are illustrated with Indian survey-data on private-tuition, where income-paths of usage-maximizing subsidies differ significantly from welfare-maximizing ones.

Date: 2021-05, Revised 2022-11
New Economics Papers: this item is included in nep-dcm, nep-ecm and nep-upt
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