Demand and Welfare Analysis in Discrete Choice Models with Social Interactions / Debopam Bhattacharya, Pascaline Dupas, Shin Kanaya.

Format:

Book

Author/Creator:

Bhattacharya, Debopam.

Contributor:

National Bureau of Economic Research.

Dupas, Pascaline.

Kanaya, Shin.

Series:

Working Paper Series (National Bureau of Economic Research) no. w25947.

NBER working paper series no. w25947

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2019.

Summary:

Many real-life settings of individual choice involve social interactions, causing targeted policies to have spillover effects. This paper develops novel empirical tools for analyzing demand and welfare effects of policy interventions in binary choice settings with social interactions. Examples include subsidies for health product adoption and vouchers for attending a high-achieving school. We show that even with fully parametric specifications and unique equilibrium, choice data, that are sufficient for counterfactual demand prediction under interactions, are insufficient for welfare calculations. This is because distinct underlying mechanisms producing the same interaction coefficient can imply different welfare effects and deadweight-loss from a policy intervention. Standard index restrictions imply distribution-free bounds on welfare. We propose ways to identify and consistently estimate the structural parameters and welfare bounds allowing for unobserved group effects that are potentially correlated with observables and are possibly unbounded. We illustrate our results using experimental data on mosquito-net adoption in rural Kenya.

Notes:

Print version record

June 2019.