Individual Heterogeneity and Average Welfare
Name
Individual Heterogeneity and Average Welfare ( Ju
Size
382.01 KB
Format
Unknown
Checksum (MD5)
845acee3404551632410b75f936667f2
Author(s)
Hausman, Jerry A
Newey, Whitney K
Date Issued
May 2016
Journal
Econometrica
Publisher
The Econometric Society
Citation
Hausman, Jerry A., and Whitney K. Newey. “Individual Heterogeneity and Average Welfare.” Econometrica 84, no. 3 (2016): 1225–1248 © 2016 The Econometric Society
Version
Original manuscript
Abstract
Individual heterogeneity is an important source of variation in demand. Allowing for general heterogeneity is needed for correct welfare comparisons. We consider general heterogeneous demand where preferences and linear budget sets are statistically independent. Only the marginal distribution of demand for each price and income is identified from cross-section data where only one price and income is observed for each individual. Thus, objects that depend on varying price and/or income for an individual are not generally identified, including average exact consumer surplus. We use bounds on income effects to derive relatively simple bounds on the average surplus, including for discrete/continuous choice. We also sketch an approach to bounding surplus that does not use income effect bounds. We apply the results to gasoline demand. We find tight bounds for average surplus in this application, but wider bounds for average deadweight loss.
MIT Department
Massachusetts Institute of Technology. Department of Economics
Terms of Use
Creative Commons Attribution-Noncommercial-Share Alike
Persistent DSpace Link
DOI of Published Version
https://doi.org/10.3982/ECTA11899
