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Empirical welfare analysis with hedonic budget constraints

Author

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  • Debopam Bhattacharya
  • Ekaterina Oparina
  • Qianya Xu

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

  • Debopam Bhattacharya & Ekaterina Oparina & Qianya Xu, 2024. "Empirical welfare analysis with hedonic budget constraints," CEP Discussion Papers dp2050, Centre for Economic Performance, LSE.
  • Handle: RePEc:cep:cepdps:dp2050
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    References listed on IDEAS

    as
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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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