Demand and Welfare Analysis in Discrete Choice Models with Social Interactions

Debopam Bhattacharya, Pascaline Dupas and Shin Kanaya

No 25947, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Many real-life settings of individual 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 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 propose ways to identify and consistently estimate the structural parameters and welfare bounds allowing for unobserved group effects that are potentially correlated with observables and are possibly unbounded. We illustrate our results using experimental data on mosquito-net adoption in rural Kenya.

JEL-codes: C31 C35 C57 H23 I38 (search for similar items in EconPapers)
Date: 2019-06
New Economics Papers: this item is included in nep-dcm and nep-ure
Note: DEV PE
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Citations: View citations in EconPapers (4)

Published as Debopam Bhattacharya & Pascaline Dupas & Shin Kanaya, 2024. "Demand and Welfare Analysis in Discrete Choice Models with Social Interactions," Review of Economic Studies, vol 91(2), pages 748-784.

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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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