Empirical welfare analysis with hedonic budget constraints

Debopam Bhattacharya, Ekaterina Oparina and Qianya Xu

CEP Discussion Papers from Centre for Economic Performance, LSE

Abstract: We analyze demand settings where heterogeneous consumers maximize utility for product attributes subject to a nonlinear budget constraint. We develop nonparametric methods for welfare-analysis of interventions that change the constraint. Two new findings are Roy's identity for smooth, nonlinear budgets, which yields a Partial Differential Equation system, and a Slutsky-like symmetry condition for demand. Under scalar unobserved heterogeneity and single-crossing preferences, the coefficient functions in the PDEs are nonparametrically identified, and under symmetry, lead to path-independent, money-metric welfare. We illustrate our methods with welfare evaluation of a hypothetical change in relationship between property rent and neighborhood school-quality using British microdata.

Keywords: hedonic model; nonlinear budget; nonparametric identification; welfare; compensating/equivalent variation; partial differential equation; Slutsky symmetry; Roy’s Identity; Path Independence. (search for similar items in EconPapers)
Date: 2024-11-08
New Economics Papers: this item is included in nep-dcm and nep-upt
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https://cep.lse.ac.uk/pubs/download/dp2050.pdf (application/pdf)

Related works:
Working Paper: Empirical Welfare Analysis with Hedonic Budget Constraints (2024)
Working Paper: Empirical Welfare Analysis with Hedonic Budget Constraints (2024)
Working Paper: Empirical welfare analysis with hedonic budget constraints (2024)
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