Empirical Welfare Analysis with Hedonic Budget Constraints
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.
Keywords
Cite
@article{arxiv.2411.01064,
title = {Empirical Welfare Analysis with Hedonic Budget Constraints},
author = {Debopam Bhattacharya and Ekaterina Oparina and Qianya Xu},
journal= {arXiv preprint arXiv:2411.01064},
year = {2024}
}