Empirical Welfare Analysis with Hedonic Budget Constraints

Debopam Bhattacharya; Ekaterina Oparina; Qianya Xu

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arXiv · 2411.01064

Empirical Welfare Analysis with Hedonic Budget Constraints

Debopam Bhattacharya·Ekaterina Oparina·Qianya Xu

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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.

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Debopam Bhattacharya, Ekaterina Oparina, Qianya Xu. 2024-11-01. Empirical Welfare Analysis with Hedonic Budget Constraints. https://arxiv.org/abs/2411.01064

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