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Welfare analysis using nonseparable models

  • Stefan Hoderlein

    ()

    (Institute for Fiscal Studies and Brown)

  • Anne Vanhems

    (Institute for Fiscal Studies and Toulouse Business School)

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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File URL: http://cemmap.ifs.org.uk/wps/cwp0111.pdf
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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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