'Fair' Welfare Comparisons with Heterogeneous Tastes: Subjective Versus Revealed Preferences

46 Pages Posted: 31 Aug 2017

See all articles by Alpaslan Akay

Alpaslan Akay

IZA Institute of Labor Economics

Olivier Bargain

IZA Institute of Labor Economics; University College Dublin (UCD)

Holguer X. Jara

KU Leuven

Abstract

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 different ethical priors regarding work preferences, we compare the welfare rankings obtained with both methods. The correlation in welfare ranks is high in general and very high for the 60% of the population whose actual choices coincide with subjective well-being maximization. For the rest, most of the discrepancies seem to be explained by labor market constraints among the low skilled and underemployment among low-educated single mothers. Importantly from a Rawlsian perspective, the identification of the worst o¤ depends on ethical views regarding responsibility for work preferences and the extent to which actual choices are constrained on the labor market.

Keywords: fair allocation, money metric, decision utility, experienced utility, labor supply, subjective well-being

JEL Classification: C35, C90, D60, D63, D71, H24, H31, J22

Suggested Citation

Akay, Alpaslan and Bargain, Olivier and Jara, Holguer X., 'Fair' Welfare Comparisons with Heterogeneous Tastes: Subjective Versus Revealed Preferences. IZA Discussion Paper No. 10908, Available at SSRN: https://ssrn.com/abstract=3029778

Alpaslan Akay (Contact Author)

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Olivier Bargain

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

University College Dublin (UCD) ( email )

Belfield, Dublin 4 4
Ireland
+353 1 716 8357 (Phone)
+353 1 283 0068 (Fax)

HOME PAGE: http://www.ucd.ie/economics/staff/obargain/obargain.htm

Holguer X. Jara

KU Leuven ( email )

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