What is the welfare effect of a price change? The paper addresses this question by empirically comparing welfare measures and computational methods under different demand systems, parameters choices and price shocks. In the context of individual welfare and as a rule of thumb, welfare measures converge to approximately the same values for price changes below 10%. Above this threshold, these measures start to diverge significantly. Budget shares play an important role in explaining such divergence, whereas the choice of demand system has a minor role. These findings generally hold in the context of social welfare. Statistical inference and stochastic dominance help to refine results, particularly for the lower parts of the income distributions.
Araar A., Verme P. (2019). Prices and welfare: a comparative analysis of measures and computational methods. EMPIRICAL ECONOMICS, 57(4), 1077-1101 [10.1007/s00181-018-1492-x].
Prices and welfare: a comparative analysis of measures and computational methods
Verme P.
2019
Abstract
What is the welfare effect of a price change? The paper addresses this question by empirically comparing welfare measures and computational methods under different demand systems, parameters choices and price shocks. In the context of individual welfare and as a rule of thumb, welfare measures converge to approximately the same values for price changes below 10%. Above this threshold, these measures start to diverge significantly. Budget shares play an important role in explaining such divergence, whereas the choice of demand system has a minor role. These findings generally hold in the context of social welfare. Statistical inference and stochastic dominance help to refine results, particularly for the lower parts of the income distributions.I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.
