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A Stochastic Model for the Utility of Income

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Author Info

  • Dagsvik, John k:

    ()
    (Statistics Norway)

  • Strøm, Steinar

    ()
    (Dept. of Economics, University of Oslo)

Abstract

In this paper we propose a particular approach to measuring utility of income. To this end we develop a theoretical framework that restricts the class of admissible functional forms and distributions of the random components of the model. The theoretical approach is based on ideas and principles that are used in modern psychophysical research and theories of probabilistic choice.The empirical part of the paper is based on “Stated Preference” data (SPD). In the present context this means that individuals participating in a laboratory type of experiments are asked to rank order a set of hypothetical alternatives presented.

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File URL: http://www.sv.uio.no/econ/english/research/unpublished-works/working-papers/pdf-files/2003/Memo-32-2003.pdf
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Bibliographic Info

Paper provided by Oslo University, Department of Economics in its series Memorandum with number 32/2003.

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Length: 39 pages
Date of creation: 03 Oct 2003
Date of revision:
Handle: RePEc:hhs:osloec:2003_032

Contact details of provider:
Postal: Department of Economics, University of Oslo, P.O Box 1095 Blindern, N-0317 Oslo, Norway
Phone: 22 85 51 27
Fax: 22 85 50 35
Email:
Web page: http://www.oekonomi.uio.no/indexe.html
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Keywords: Utility of income; Random utility; Invariance principles;

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References

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  1. Gerard Debreu, 1957. "Stochastic Choice and Cardinal Utility," Cowles Foundation Discussion Papers 39, Cowles Foundation for Research in Economics, Yale University.
  2. Praag, B.M.S. van & Kapteyn, A.J., 1994. "How sensible is the leyden individual welfare function of income? A reply," Open Access publications from Tilburg University urn:nbn:nl:ui:12-364387, Tilburg University.
  3. Van Praag, Bernard, 1971. "The welfare function of income in Belgium: An empirical investigation," European Economic Review, Elsevier, vol. 11(3), pages 337-369.
  4. Herwaarden, F.G. van & Kapteyn, A.J., 1981. "Empirical comparison of the shape of welfare functions," Open Access publications from Tilburg University urn:nbn:nl:ui:12-364298, Tilburg University.
  5. Seidl, Christian, 1994. "How sensible is the Leyden individual welfare function of income?," European Economic Review, Elsevier, vol. 38(8), pages 1633-1659, October.
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Cited by:
  1. John K. Dagsvik, 2006. "Axiomatization of Stochastic Models for Choice under Uncertainty," Discussion Papers 465, Research Department of Statistics Norway.
  2. John K. Dagsvik & Steinar Strøm & Zhiyang Jia, 2005. "Utility of Income as a Random Function. Behavioral Characterization and Empirical Evidence," Discussion Papers 431, Research Department of Statistics Norway.

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