Distributional welfare analysis for latent utility models
Emerson Melo (Indiana University)
Paper Abstract:
This paper develops a distributional welfare analysis framework for latent utility models with additively separable unobserved heterogeneity. We make four key contributions. First, we establish a distributional aggregation theorem, which facilitates welfare analysis at the quantile level. Second, we extend the Williams-Daly-Zachary (WDZ) theorem to characterize choice behavior beyond the average case. Third, we discuss our framework within the context of compensated variation, a common welfare measure. Finally, we extend our results to account for choice set modifications.