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Robustness Measures for Welfare Analysis

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  • Zi Yang Kang
  • Shoshana Vasserman

Abstract

Economists routinely make functional form assumptions on demand curves to derive welfare conclusions. How sensitive are these conclusions to such assumptions? In this paper, we develop robustness measures that quantify the extent to which the true demand curve must deviate from common functional form assumptions in order to overturn a welfare conclusion. We parametrize this variability in terms of the gradient and curvature of the demand curve. By leveraging tools from information design, we show that our measures are easy to compute. Our measures are also flexible and easy to use, as we illustrate through empirical applications.

Suggested Citation

  • Zi Yang Kang & Shoshana Vasserman, 2025. "Robustness Measures for Welfare Analysis," American Economic Review, American Economic Association, vol. 115(8), pages 2449-2487, August.
    • Handle: RePEc:aea:aecrev:v:115:y:2025:i:8:p:2449-87
    DOI: 10.1257/aer.20220673
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    References listed on IDEAS

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    1. Caplin, Andrew & Nalebuff, Barry, 1991. "Aggregation and Social Choice: A Mean Voter Theorem," Econometrica, Econometric Society, vol. 59(1), pages 1-23, January.
    2. Maximilian Auffhammer & Edward Rubin, 2018. "Natural Gas Price Elasticities and Optimal Cost Recovery Under Consumer Heterogeneity: Evidence from 300 million natural gas bills," NBER Working Papers 24295, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Juan Pablo Atal & José Ignacio Cuesta & Felipe González & Cristóbal Otero, 2024. "The Economics of the Public Option: Evidence from Local Pharmaceutical Markets," American Economic Review, American Economic Association, vol. 114(3), pages 615-644, March.
    2. Jack (Peiyao) Ma & Andrea Mantovani & Carlo Reggiani & Annette Broocks & Néstor Duch-Brown, 2024. "The Price Effects of Prohibiting Price Parity Clauses: Evidence from International Hotel Groups," Economics Series Working Papers 1043, University of Oxford, Department of Economics.
    3. Kocourek, Pavel & Steiner, Jakub & Stewart, Colin, 2024. "Boundedly rational demand," Theoretical Economics, Econometric Society, vol. 19(4), November.
    4. Aaron L. Bodoh-Creed & Brent R. Hickman & John A. List & Ian Muir & Gregory K. Sun, 2023. "Stress Testing Structural Models of Unobserved Heterogeneity: Robust Inference on Optimal Nonlinear Pricing," NBER Working Papers 31647, National Bureau of Economic Research, Inc.
    5. Jäger, Philipp, 2023. "Can pensions save lives? Evidence from the introduction of old-age assistance in the UK," Ruhr Economic Papers 995, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    6. Charles Gauthier & Sebastiaan Maes & Raghav Malhotra, 2023. "Consumer Welfare Under Individual Heterogeneity," Papers 2303.01231, arXiv.org, revised Sep 2025.
    7. Riku Buri & Miika Heinonen & Jonatan Kanervo & Joel Karjalainen, 2024. "The effects of entry deregulation: evidence from interurban passenger transport," Journal of Regulatory Economics, Springer, vol. 66(2), pages 181-204, December.
    8. Fedor Sandomirskiy & Philip Ushchev, 2024. "The geometry of consumer preference aggregation," Papers 2405.06108, arXiv.org.

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    More about this item

    JEL classification:

    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D60 - Microeconomics - - Welfare Economics - - - General
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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