Demand and Welfare Analysis in Discrete Choice Models with Social Interactions

Pascaline Dupas, Debopam Bhattacharya and ,
Authors registered in the RePEc Author Service: Shin Kanaya

No 13707, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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: 2019-04
New Economics Papers: this item is included in nep-dcm, nep-ecm, nep-hea 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 (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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