Bhattacharya, D. and Komarova, T.

Incorporating Social Welfare in Program-Evaluation and Treatment Choice

Review of Economics and Statistics, accepted

(2023)

Abstract: We introduce a notion of money-metric social welfare for discrete choice, under unrestricted heterogeneity and income-effects. It is the maximized indirect utility under normalization of the outside option. It also equals the amount of income necessary to achieve a given level of utility, while certain choices are prohibited. We show that the distribution of this quantity is non-parametrically identified as a closed-form functional of average structural demand for the outside option, making it useful for cost-benefit analysis and optimal targeting. An illustration with private tuition subsidies in India shows that the income-path of usage-maximizing subsidies differs significantly from welfare-maximizing ones.

Keywords: Discrete Choice, Unobserved Heterogeneity, Nonparametric Identification, Social Welfare, Indirect Utility, Cost-Benefit Analysis, Policy Interventions

JEL Codes: C14, C25, D12, D31, D61, D63

Author links: Debopam Bhattacharya  

PDF Link: https://www.econ.cam.ac.uk/research-files/docs/Restat_Resubmission_October2023.pdf