Econometrica Vol. 83 No. 2 2015
Nonparametric Welfare Analysis for Discrete Choice
Abstract
We consider empirical measurement of equivalent/compensating variation resulting from price-change of a discrete good using individual-level data, when there is unobserved heterogeneity in preferences.We show that for binary and unordered multinomial choice, the marginal distributions of EV/CV can be expressed as simple closed-form functionals of conditional choice-probabilities under essentially unrestricted preference-distributions.These results hold even when the distribution/dimension of unobserved heterogeneity are neither known nor identi-…ed and utilities are neither quasi-linear nor parametrically speci…ed.The welfare distributions take simple forms which are easy to compute in applications.In particular, average EV for a price-rise equals the change in average Marshallian consumer-surplus and is smaller than average CV for a normal good.These nonparametric point-identi…cation results fail for ordered choice if the unit-price is identical for all alternatives, thereby providing a connection to Hausman-Newey's (2014) partial identi…cation results for the limiting case of continuous choice.
- DOI
- 10.3982/ecta12574
- Volume
- 83
- Issue
- 2
- Pages
- 617-649
- Language
- en
- Sources
- bibtex:phds-export.bib crossref openalex