Estimating the distribution of welfare effects using quantiles. (18th July 2017)

• Record Type: Journal Article
• Authors: Hoderlein, Stefan; Vanhems, Anne
• Is Part Of: Journal of applied econometrics. Volume 33:Number 1(2018)
• Page Start: 52
• Page End: 72
• Publication Date: 2017-07-18
• Subjects: Econometrics -- Periodicals; 330.015195
• DOI: 10.1002/jae.2587
• Languages: English
• ISSNs: 0883-7252

Abstract

Summary: This paper proposes a framework to model welfare effects that are associated with a price change in a population of heterogeneous consumers. The framework is similar to that of Hausman and Newey ( Econometrica, 1995, 63, 1445–1476), but allows for more general forms of heterogeneity. Individual demands are characterized by a general model that is nonparametric in the regressors, as well as monotonic in unobserved heterogeneity, allowing us to identify the distribution of welfare effects. We first argue why a decision maker should care about this distribution. Then we establish constructive identification, propose a sample counterparts estimator, and analyze its large‐sample properties. Finally, we apply all concepts to measuring the heterogeneous effect of a change of gasoline price using US consumer data and find very substantial differences in individual effects across quantiles.