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

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 prefere...

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Bibliographic Details
Published in:Social choice and welfare 2020-06, Vol.55 (1), p.51-84
Main Authors: Akay, Alpaslan, Bargain, Olivier, Jara, H. Xavier
Format: Article
Language:English
Subjects:
Business & Economics
Compensation
Discrepancies
Economic Theory/Quantitative Economics/Mathematical Methods
Economics
Economics and Finance
elasticities
Elicitation
employment
equivalent
Fairness
Folkhälsovetenskap, global hälsa, socialmedicin och epidemiologi
Game Theory
happier
happiness
Heterogeneity
Humanities and Social Sciences
income
International Political Economy
Labor market
Labor supply
Leisure
Mathematical Methods In Social Sciences
Money
Original Paper
Preferences
Public Finance
Public Health, Global Health, Social Medicine and Epidemiology
Rationing
Revealed preferences
Satisfaction
Social and Behav. Sciences
Social Policy
utility
Welfare
well
Well being
would
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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.
ISSN:0176-1714
1432-217X
DOI:10.1007/s00355-019-01231-4