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'Fair' welfare comparisons with heterogeneous tastes: subjective versus revealed preferences

Journal article
Authors Alpaslan Akay
O. Bargain
H. X. Jara
Published in Social Choice and Welfare
Pages 34
ISSN 0176-1714
Publication year 2020
Published at Department of Economics
Pages 34
Language en
Links dx.doi.org/10.1007/s00355-019-01231...
Keywords well, happiness, income, satisfaction, utility, elasticities, employment, equivalent, happier, would, Business & Economics, Mathematical Methods In Social Sciences
Subject categories Public Health, Global Health, Social Medicine and Epidemiology

Abstract

Multidimensional welfare analysis has recently been revived by money-metric measures based on explicit fairness principles and the respect of individual preferences. To operationalize this approach, preference heterogeneity can be inferred from the observation of individual choices (revealed preferences) or from self-declared satisfaction following these choices (subjective well-being). We question whether using one or the other method makes a difference for welfare analysis based on income-leisure preferences. We estimate ordinal preferences that are either consistent with actual labor supply decisions or with income-leisure satisfaction. For ethical priors based on the compensation principle, we compare the welfare rankings obtained with both methods. The correlation in welfare ranks is high in general and reranking is insignificant for 77% of the individuals. The remaining discrepancies possibly pertain to a variety of factors including constraints (health issues, labor market rationing), irrational behavior and alternative life choices to the pursuit of well-being. We discuss the implications of using one or the other preference elicitation method for welfare analysis.

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