IDEAS home Printed from
   My bibliography  Save this paper

Conditions for Extrapolating Differences in Consumption to Differences in Welfare




We characterize conditions under which a better consumption distribution implies higher utility. Specifically, when comparing two populations, we consider when one population's first-order stochastic dominance in consumption implies higher expected utility for each subpopulation of individuals who have the same utility function, compared to the corresponding subpopulation of the lower-consumption population. Although this implication seems natural and indeed holds in the familiar case where everyone has the same utility function (risk preferences), we first provide an example in which the opposite occurs: despite worse consumption, expected utility is higher in every subpopulation, essentially by trading consumption risk between subpopulations in ways that are Pareto-improving. We then show that higher expected utility results from higher consumption in different settings. First, we assume a fixed dependence structure (copula) between consumption and preferences, with independence as a special case. Second, viewing the two distributions as treated and untreated potential outcomes, we use the rank invariance assumption from the treatment effects literature, without any explicit restrictions on the consumption--preferences dependence structure. Given that empirical studies only learn about consumption differences, our results help make explicit when such differences can be interpreted as individuals being better off.

Suggested Citation

  • Wei Zhao & David M. Kaplan, 2023. "Conditions for Extrapolating Differences in Consumption to Differences in Welfare," Working Papers 2307, Department of Economics, University of Missouri.
  • Handle: RePEc:umc:wpaper:2307

    Download full text from publisher

    File URL:
    Download Restriction: no

    More about this item


    copula; first-order stochastic dominance; rank invariance; risk preferences;
    All these keywords.

    JEL classification:

    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • D39 - Microeconomics - - Distribution - - - Other
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis

    NEP fields

    This paper has been announced in the following NEP Reports:


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:umc:wpaper:2307. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chao Gu (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.