The welfare loss associated to characteristics of the goods: application to housing policy

The subsidies in kind aimed at heterogeneous goods do not merely generate the traditional excess burden: there is an alternative welfare loss as the distortion also affects non-price characteristics of the good. The reason is that the beneficiary of this type of subsidy has to consume a good with so...

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Bibliographic Details
Published in:Empirical economics 2010-04, Vol.38 (2), p.305-323
Main Authors: Bilbao, Celia, Bilbao, Amelia, Labeaga, José M.
Format: Article
Language:English
Subjects:
Commodities
Consumers
Consumption
Econometrics
Economic models
Economic theory
Economic Theory/Quantitative Economics/Mathematical Methods
Economics
Economics and Finance
Finance
Government subsidies
Housing policy
Housing subsidies
Insurance
Management
Original Paper
Prices
Statistics for Business
Studies
Subsidies
Welfare economics
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Summary:The subsidies in kind aimed at heterogeneous goods do not merely generate the traditional excess burden: there is an alternative welfare loss as the distortion also affects non-price characteristics of the good. The reason is that the beneficiary of this type of subsidy has to consume a good with some given characteristics which do not necessarily agree with his choice in the market. The welfare loss analysed here tries to overcome the lack of a correct measure of excess burden in the situations indicate above. Therefore, the paper constitutes an empirical novelty in the theory of excess burden. Moreover, we provide empirical evidence of the welfare loss after estimating a hedonic price model and using predicted prices in a quadratic almost ideal demand system for housing characteristics. The new excess burden is computed under standard assumptions from the theory of rationing. We identify the sources of the losses and we also provide a monetary measure suggesting that, under plausible parameter values, it can be quantitatively high.
ISSN:0377-7332
1435-8921
DOI:10.1007/s00181-009-0267-9