Beyond Revealed Preference Choice Theoretic Foundations for Behavioral Welfare Economics

B. Douglas Bernheim and Antonio Rangel
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Antonio Rangel: Department of Economics, Stanford University

No 07-031, Discussion Papers from Stanford Institute for Economic Policy Research

Abstract: This paper proposes a choice-theoretic framework for evaluating economic welfare with the following features. (1) It is applicable irrespective of the positive model used to describe behavior. (2) It subsumes standard welfare economics both as a special case (when standard choice axioms are satisfied) and as a limiting case (when behavioral anomalies are small). (3) It requires only data on choices. (4) It is easily applied in the context of specific behavioral theories, such as the ß, d model of time inconsistency, for which it has novel normative implications. (5) It generates natural counterparts for the standard tools of applied welfare analysis, including compensating and equivalent variation, consumer surplus, Pareto optimality, and the contract curve, and permits a broad generalization of the first welfare theorem. (6) Though not universally discerning, it lends itself to principled refinements.

Keywords: Economic Welware; behavior economics; welfare analysis; consumer surplus; Pareto optimality (search for similar items in EconPapers)
JEL-codes: I30 (search for similar items in EconPapers)
Date: 2007-12
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Citations: View citations in EconPapers (11)

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http://www-siepr.stanford.edu/repec/sip/07-031.pdf (application/pdf)

Related works:
Journal Article: Beyond Revealed Preference: Choice-Theoretic Foundations for Behavioral Welfare Economics (2009)
Working Paper: Beyond Revealed Preference: Choice Theoretic Foundations for Behavioral Welfare Economics (2008)
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