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

• Published in: Social choice and welfare Vol. 55; no. 1; pp. 51 - 84
• Main Authors: Akay, Alpaslan, Bargain, Olivier, Jara, H. Xavier
• Format: Journal Article
• Language: English
• Published: Berlin/Heidelberg Springer 01.06.2020; Springer Berlin Heidelberg; Springer Nature B.V; Springer Verlag
• 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
• ISSN: 0176-1714; 1432-217X
• DOI: 10.1007/s00355-019-01231-4

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.