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'Fair' Welfare Comparisons with Heterogeneous Tastes: Subjective versus Revealed Preferences

Alpaslan Akay (), Olivier Bargain () and Xavier Jara ()
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Alpaslan Akay: University of Gothenburg
Xavier Jara: KU Leuven

No 10908, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: Multidimensional welfare analysis has recently been revived by money-metric measures based on explicit fairness principles and the respect of individual preferences. To operationalize this approach, preference heterogeneity can be inferred from the observation of individual choices (revealed preferences) or from self-declared satisfaction following these choices (subjective well-being). We question whether using one or the other method makes a difference for welfare analysis based on income-leisure preferences. We estimate ordinal preferences that are either consistent with actual labor supply decisions or with income- leisure satisfaction. For different ethical priors regarding work preferences, we compare the welfare rankings obtained with both methods. The correlation in welfare ranks is high in general and very high for the 60% of the population whose actual choices coincide with subjective well-being maximization. For the rest, most of the discrepancies seem to be explained by labor market constraints among the low skilled and underemployment among low-educated single mothers. Importantly from a Rawlsian perspective, the identification of the worst o¤ depends on ethical views regarding responsibility for work preferences and the extent to which actual choices are constrained on the labor market.

Keywords: fair allocation; money metric; decision utility; experienced utility; labor supply; subjective well-being (search for similar items in EconPapers)
JEL-codes: C35 C90 D60 D63 D71 H24 H31 J22 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-hap, nep-lma, nep-pbe and nep-upt
Date: 2017-07
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