Nonparametric estimation of exact consumers surplus and deadweight loss PDF
Preview Nonparametric estimation of exact consumers surplus and deadweight loss
Digitized by the Internet Archive in 2011 with funding from Boston Library Consortium IVIember Libraries http://www.archive.org/details/nonparametricestOOhaus HB31 kfif*.::zrt.-' .M415 2_ working paper department of economics NONPARAMETRIC ESTIMATION OF EXACT CONSUMERS SURPLUS AND DEADWEIGHT LOSS Jerry A. Hausman Whitney K. Newey No. 93-2 Dec. 1992 massachusetts institute of technology 50 memorial drive Cambridge, mass. 02139 NONPAEAMETRIC ESTIMATION OF EXACT CONSUMERS SURPLUS AND DEADWEIGHT LOSS Jerry A. Hausman Whitney K. Newey No. 93-2 Dec. 1992 1S93 NONPARAMETRIC ESTIMATION OF EXACT CONSUMERS SURPLUS AND DEADWEIGHT LOSS by Jerry A. Hausman and Whitney K. Newey Department of Economics, MIT October 1990 Revised, December 1992 This research was supported by the NSF. Helpful comments were provided by T. Gorman, I. Jewitt, A. Pakes and participants at several seminars. Sarah Fisher-Ellison and Christine Meyer provided able research assistance. Abstract We apply nonparametric regression models to estimation of demand curves of the type most often used in applied research. From the demand curve estimators we derive estimates of exact consumers surplus and deadweight loss, that are the most widely used welfare and economic efficiency measures in areas of economics such as public finance. We also develop tests of the symmetry and downward sloping properties of compensated demand. We work out asymptotic normal sampling theory for kernel and series nonparametric estimators, as well as for the parametric case. The paper includes an application to gasoline demand. Empirical questions of interest here are the shape of the demand curve and the average magnitude of welfare loss from a te« on gasoline. In this application we compare parametric and nonparametric estimates of the demamd curve, calculate exact and approximate measures of consumers surplus and deadweight loss, and give standard error estimates. We also zmalyze the sensitivity of the welfare measures to components of nonpeirametric regression estimators such as the number of terms in a series approximation. Keywords: Consumer surplus, deadweight loss, consumer tests, nonpsirametric estimation. Authors: Professor Jerry A. Hausman Professor Whitney K. Newey Department of Economics Department of Economics MIT MIT Cambridge, MA 02139 Cambridge, MA 02139
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