‘Fair’ welfare comparisons with heterogeneous tastes: subjective versus revealed preferences

Abstract

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 di¤erence for welfare analysis based on income-leisure preferences. We estimate ordinal preferences that are either consistent with actual labor supply decisions or with incomeleisure satisfaction. For di¤erent ethical priors regarding work preferences, we compare the welfare rankings obtained with both methods. The correlation in welfare ranks is high in general and very high for the 60% of the population whose actual choices coincide with subjective well-being maximization. For the rest, most of the discrepancies seem to be explained by labor market constraints among the low skilled and underemployment among low-educated single mothers. Importantly from a Rawlsian perspective, the identi…cation of the worst o¤ depends on ethical views regarding responsibility for work preferences and the extent to which actual choices are constrained on the labor market.

Experienced versus decision utility: large‐scale comparison for income–leisure preferences*

“…Clark et al (1998) find that a lower job satisfaction level (slightly) increases the chances of quitting in the future. 7 In Akay et al (2020), we suggest a related approach to discuss the implications of using different types of preference elicitation methods for welfare analysis. We estimate ordinal preferences, consistent with either actual choices or income-leisure satisfaction, in order to compute equivalent incomes from the "fair allocation theory" (Fleurbaey and Maniquet, 2006) in both cases, and we characterize how welfare ranks change when moving from one set of preferences to the other.…”

“…This paper proposes a tangible approach to address this question in the context of labor supply decisions. Rather than confronting the ordinal preferences consistent with decision-based versus experience-based welfare metric, 3 we directly compare actual working hours (consistent with decision-utility maximization) and optimal working hours (from the perspective of experienced utility, i.e. hours that maximize income-leisure satisfaction).…”

“…This alternative approach is used inAkay et al (2020) where money metrics are derived from ordinal preferences consistent with either decisions or subjective experience.c 2023 The Authors. The Scandinavian Journal of Economics published by John Wiley & Sons Ltd on behalf of Föreningen för utgivande av the SJE.…”

“…This alternative approach is used inAkay et al (2020) where money metrics are derived from ordinal preferences consistent with either decisions or subjective experience.…”