Robust Bounds for Welfare Analysis

48 Pages Posted: 20 Sep 2021 Last revised: 10 Jan 2022

See all articles by Zi Yang Kang

Zi Yang Kang

Stanford University

Shoshana Vasserman

Stanford Graduate School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: September 19, 2021

Abstract

Economists routinely make functional form assumptions about consumer demand to obtain welfare estimates. How sensitive are welfare estimates to these assumptions? We answer this question by providing bounds on welfare that hold for families of demand curves commonly considered in different literatures. We show that commonly chosen functional forms, such as linear, exponential and CES demand, are extremal in different families: they yield either the highest or lowest welfare estimate among all demand curves in those families. To illustrate our approach, we apply our results to the welfare analysis of trade tariffs, income taxation, and energy subsidies.

Keywords: welfare analysis, welfare bounds, robustness, functional form assumptions

JEL Classification: C14, C51, D04, D61

Suggested Citation

Kang, Zi Yang and Vasserman, Shoshana, Robust Bounds for Welfare Analysis (September 19, 2021). Available at SSRN: https://ssrn.com/abstract=3926399 or http://dx.doi.org/10.2139/ssrn.3926399

Zi Yang Kang (Contact Author)

Stanford University ( email )

Stanford, CA 94305
United States

Shoshana Vasserman

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

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