Measuring Welfare Effects in Models with Random Coefficients
Journal of Applied Econometrics, Vol. 21, pp. 227-244, 2006
Posted: 7 May 2012
Date Written: March 10, 2006
In economic research, it is often important to express the marginal value of a variable in monetary terms. In random coefficient models, this marginal monetary value is the ratio of two random coefficients and is thus random itself. In this paper, we study the distribution of this ratio and particularly the consequences of different distributional assumptions about the coefficients. It is shown that important characteristics of the distribution of the marginal monetary value may be sensitive to the distributional assumptions about the random coefficients. The median, however, is much less sensitive than the mean.
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