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Robust Hicksian Welfare Analysis under Individual Heterogeneity

Author

Listed:
  • Maes, Sebastiaan

    (University of Antwerp)

  • Malhotra, Raghav

    (University of Leicester)

Abstract
Welfare e ects of price changes are often estimated with cross-sections ; these do not identify demand with heterogeneous consumers. We develop a theoretical method addressing this, utilizing uncompensated demand moments to construct local approximations for compensated demand moments, robust to unobserved preference heterogeneity. Our methodological contribution offers robust approximations for average and distributional welfare estimates, extending to price indices, taxable income elasticities, and general equilibrium welfare. Our methods apply to any cross-section; we demonstrate them via UK household budget survey data. We uncover an insight: simple non-parametric representative agent models might be less biased than complex parametric models accounting for heterogeneity.

Suggested Citation

  • Maes, Sebastiaan & Malhotra, Raghav, 2024. "Robust Hicksian Welfare Analysis under Individual Heterogeneity," CRETA Online Discussion Paper Series 84, Centre for Research in Economic Theory and its Applications CRETA.
  • Handle: RePEc:wrk:wcreta:84
    as

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    File URL: https://warwick.ac.uk/fac/soc/economics/research/centres/creta/papers/manage/creta84_-_sebastian_maes.pdf
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    nonparametric welfare analysis ; individual heterogeneity ; Hicksian demand ; compensating variation ; exact consumer surplus ; deadweight loss ; price indices JEL codes: C14 ; C31 ; D11 ; D12 ; D63 ; H22 ; I31;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being

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