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Beyond Revealed Preference Choice Theoretic Foundations for Behavioral Welfare Economics

Author

Listed:
  • Douglas Bernheim

    (Tax and Budget Policy Program, Stanford University)

  • Antonio Rangel

    (Department of Economics, Stanford University)

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.

Suggested Citation

  • Douglas Bernheim & Antonio Rangel, 2007. "Beyond Revealed Preference Choice Theoretic Foundations for Behavioral Welfare Economics," Discussion Papers 07-031, Stanford Institute for Economic Policy Research.
    • Handle: RePEc:sip:dpaper:07-031
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    More about this item

    Keywords

    Economic Welware; behavior economics; welfare analysis; consumer surplus; Pareto optimality;
    All these keywords.

    JEL classification:

    • I30 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General

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