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Empirical Welfare Analysis with Hedonic Budget Constraints

Author

Listed:
  • Bhattacharya, D.
  • Oparina, E.
  • Xu, Q.

Abstract

We analyze demand settings where heterogeneous consumers maximize utility for product attributes subject to a nonlinear budget constraint. We develop nonparametric methods for welfare-analysis of interventions that change the constraint. Two new findings are Roy’s identity for smooth, nonlinear budgets, which yields a Partial Differential Equation system, and a Slutsky-like symmetry condition for demand. Under scalar unobserved heterogeneity and single-crossing preferences, the coefficient functions in the PDEs are nonparametrically identified, and under symmetry, lead to path-independent, money-metric welfare. We illustrate our methods with welfare evaluation of a hypothetical change in relationship between property rent and neighborhood school-quality using British microdata.

Suggested Citation

  • Bhattacharya, D. & Oparina, E. & Xu, Q., 2024. "Empirical Welfare Analysis with Hedonic Budget Constraints," Cambridge Working Papers in Economics 2468, Faculty of Economics, University of Cambridge.
    • Handle: RePEc:cam:camdae:2468
    Note: db692, qx230
    as

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    File URL: https://www.econ.cam.ac.uk/research-files/repec/cam/pdf/cwpe2468.pdf
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    More about this item

    Keywords

    Hedonic Model; Nonlinear Budget; Nonparametric Identification; Welfare; Compensating/Equivalent Variation; Partial Differential Equation; Slutsky Symmetry; Roy’s Identity; Path Independence;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • I30 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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