Empirical Welfare Analysis in Random Utility Models of Labour Supply

André Decoster and Peter Haan

No 1074, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research

Abstract: The aim of this paper is to apply recently proposed individual welfare measures in the context of random utility models of labour supply. Contrary to the standard practice of using reference preferences and wages, these measures preserve preference heterogeneity in the normative step of the analysis. They also make the ethical priors, implicit in any interpersonal comparison, more explicit. On the basis of microdata from the Socio Economic Panel (SOEP) for married couples in Germany, we provide empirical evidence about the sensitivity of the welfare orderings to different normative principles embodied in these measures. We retrieve individual and household specific preference heterogeneity, by estimating a structural discrete choice labor supply model. We use this preference information to construct welfare orderings of households according to the different metrics, each embodying different ethical choices concerning the preference heterogeneity in the consumption-leisure space. We then discuss how sensitive the assessment of a hypothetical tax reform is to the choice of metric. The chose tax reform is similar to a subsidy of social security contributions.

Keywords: Welfare measures; labour supply; random utility; preference heterogeneity (search for similar items in EconPapers)
JEL-codes: C35 D63 D78 H24 H31 J22 (search for similar items in EconPapers)
Pages: 34 p.
Date: 2010
New Economics Papers: this item is included in nep-dcm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (35)

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Related works:
Working Paper: Empirical Welfare Analysis in Random Utility Models of Labour Supply (2010)
Working Paper: Empirical welfare analysis in random utility models of labour supply (2010)
Working Paper: Empirical Welfare Analysis in Random Utility Models of Labour Supply (2010)
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