Working Paper: NBER ID: w30571
Authors: Eduardo Dvila; Andreas Schaab
Abstract: This paper develops a new approach to make welfare assessments based on the notion of Dynamic Stochastic weights (DS-weights for short). For a large class of dynamic stochastic economies with heterogeneous individuals, we introduce an aggregate additive decomposition that satisfies desirable properties and that allows us to exactly decompose welfare assessments into four components: i) aggregate efficiency, ii) risk-sharing, iii) intertemporal-sharing, and iv) redistribution. We leverage DS-weights to i) revisit how welfarist (e.g., utilitarian) planners make interpersonal welfare comparisons and ii) formalize new welfare criteria that are exclusively based on one or several of the components that we identify.
Keywords: welfare assessments; dynamic stochastic weights; heterogeneous individuals; policy evaluation
JEL Codes: D60; E61
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| dsweights (C46) | aggregate welfare assessments (E10) |
| dsweights (C46) | aggregate efficiency (E10) |
| dsweights (C46) | risk sharing (D16) |
| dsweights (C46) | intertemporal sharing (D15) |
| dsweights (C46) | redistribution (H23) |
| aggregate efficiency (E10) | aggregate welfare assessments (E10) |
| risk sharing (D16) | aggregate welfare assessments (E10) |
| intertemporal sharing (D15) | aggregate welfare assessments (E10) |
| redistribution (H23) | aggregate welfare assessments (E10) |