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Welfare analysis using nonseparable models

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Author Info

  • Stefan Hoderlein

    ()
    (Institute for Fiscal Studies and Brown)

  • Anne Vanhems

    (Institute for Fiscal Studies and Toulouse Business School)

Abstract

This paper proposes a framework to model empirically welfare effects that are associated with a price change in a population of heterogeneous consumers. Individual demands are characterized by a nonseparable model which is nonparametric in the regressors, as well as monotonic in unobserved heterogeneity. In this setup, we first provide and discuss conditions under which the heterogeneous welfare effects are identified, and establish constructive identification. We then propose a sample counterpart estimator, and analyze its large sample properties. For both identification and estimation, we distinguish between the cases when regressors are exogenous and when they are endogenous. Finally, we apply all concepts to measuring the heterogeneous effect of a chance of gasoline price using US consumer data and find very substantial differences in individual effects.

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Bibliographic Info

Paper provided by Centre for Microdata Methods and Practice, Institute for Fiscal Studies in its series CeMMAP working papers with number CWP01/11.

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Date of creation: Jan 2011
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Handle: RePEc:ifs:cemmap:01/11

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Cited by:
  1. Jerry Hausman & Whitney Newey, 2013. "Individual heterogeneity and average welfare," CeMMAP working papers CWP34/13, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
  2. Richard Blundell & Joel Horowitz & Matthias Parey, 2013. "Nonparametric estimation of a heterogeneous demand function under the Slutsky inequality restriction," CeMMAP working papers CWP54/13, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.

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