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Journal Article

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

Authors

Publication date

02 Jan 2020

Summary

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.

Published in

Social Choice and Welfare

DOI

https://doi.org/10.1007/s00355-019-01231-4

ISSN

16

Subjects

Labour Economics, Income Dynamics, and Well Being

Notes

Not held in Hilary Doughty Research Library - bibliographic reference only

#526041


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