Empirical welfare analysis: when preferences matter

Abstract

Fleurbaey and Maniquet have proposed the criteria of conditional equality and of egalitarian equivalence to assess the equity among individuals in an ordinal setting. Empirical applications are rare and only partially consistent with their framework. We propose a new empirical approach that relies on individual preferences, is consistent with the ordinal criteria and enables to compare them with the cardinal criteria. We estimate a utility function that incorporates individual heterogeneous preferences, obtain ordinal measures of well-being and apply conditional equality and egalitarian equivalence. We then propose two cardinal measures of well-being, that are comparable with the ordinal model, to compute Roemer's and Van de gaer's criteria. Finally we compare the characteristics of the worst-off displayed by each criterion. We apply this model to a sample of US micro data and obtain that about 18% of the worst-off are not common to all criteria.Keywords: Random Utility, Preference Heterogeneity, Welfare, Inequality of Opportunity, Labour Supply JEL Codes: C35, D31, D63, H24, H31, J22 * The authors thank the participants of the FUSL CEREC seminar in Brussels, of the 2011 AFSE meeting in Paris, the OPHI 2011 conference in Oxford and of the internal Social Welfare seminars at CORE (UCL). They are especially grateful to André Decoster, Francisco Ferreira, Marc Fleurbaey, François Maniquet, Kristian Orsini, Andreas Peichl, Xavier Ramos, Juan Gabriel Rodriguez, Erik Schokkaert and Dirk Van de Gaer for their helpful comments and suggestions. The usual disclaimers apply.

‘Fair’ welfare comparisons with heterogeneous tastes: subjective versus revealed preferences

“…Clearly, reranking is larger in the group characterized by deviations above 10 hours per week. 16 It is consistent with the previous analysis according to which 'suboptimal'choices re ‡ect large discrepancies between revealed and subjective preferences (graphs 3 and 4 in Figure 2). In Figure C.2, we focus on the group showing deviations larger than 10 hours per week.…”

“…Given our previous results and the fact that we focus on a bidimensional welfare measure (income-leisure), we expect to …nd more overlap than in these studies. Carpantier and Sapata (2016) are in a similar situation. They also focus on income-leisure preferences, using the revealed preference approach only but a larger variety of fairness criteria.…”

“…Instead, this decomposition conveys that most of the reranking is attached to groups that potentially su¤er from speci…c labor market constraints related to low skills and possible other dimensions (gender). 16 Notice than 10 hours is the step used for hour discretization in our labor supply model, so that deviations below 10 hours may just be due to the approximation induced by this (standard) modelling choice. 17 We do not expect more dispersion with the Wage metric than with the Rent metric when considering other cases.…”

“…Several empirical implementations of the fair allocation theory have naturally relied on the 'revealed preference'approach. In particular, Bargain et al (2013), Decoster and Haan, (2014) and Carpantier and Sapata (2016) have derived welfare metrics in the income-leisure domain. 2 Other studies have originally suggested ways to infer ordinal preferences from SWB data, in particular Schokkaert et al (2011), Decancq and Schokkaert (2013) and Decancq et al (2014Decancq et al ( , 2015).…”

'Fair' Welfare Comparisons with Heterogeneous Tastes: Subjective Versus Revealed Preferences

“…ordinal preferences derived from SWB data. 3 1 See Bargain et al (2013), Decoster and Haan, (2014) and Carpantier and Sapata (2016). The …rst two studies consider preference heterogeneity across countries and across groups within Germany, respectively.…”