ERC Grant EDWEL

Measurement of consumer welfare plays a central role in economic evaluations such as the calculation of price-indices, the formulation of tax/subsidy policies and the regulation of mergers. But existing measurement methods for calculating the cash-equivalent and deadweight loss of policy-induced changes typically rely on restrictive assumptions regarding consumer preferences, leading to potentially incorrect conclusions about policy-impacts. The proposed project aims to make fundamental contributions to the methodology of empirical welfare analysis by developing nonparametric approaches which avoid such assumptions and produce reliable welfare estimates. The project’s emphasis will lie in welfare-evaluation of price/quality changes in the common real-life setting of discrete-choice. Examples include the impact of tuition subsidies for college entrants, fare-hikes for passengers and access to new channels for TV viewers. These methods carry the promise to change the academic practice of empirical welfare measurement and, given their potential use in non-academic settings, such as damage-calculation in litigations, merger-analysis etc., they can potentially have a substantial impact beyond academia.

Papers Supported by this grant:

• Applied Welfare Analysis for Discrete Choice with Interval-data on Income, with Ying Ying Lee, Journal of Econometrics, 211(2), pp.361-387. 

• Empirical Welfare Analysis for Discrete Choice: Some General Results, Quantitative Economics, 9(2), 571-615, 2018.

• Demand and Welfare Welfare Analysis in Discrete Choice Models with Social Interactions, with Pascaline Dupas (Stanford) and Shin Kanaya (Aarhus), Revise Resubmit at Review of Economic Studies.

• The Empirical Content of Binary Choice Models, Econometrica, 89(1), pp.457-474. ,  PRESENTATION SLIDES

• Income Effects and Rationalizability in Multinomial Choice Models,  8/2018.