Beyond Revealed Preference: Choice-Theoretic Foundations for Behavioral Welfare Economics
TLDR
This paper proposed a broad generalization of standard choice-theoretic welfare economics that encompasses a wide variety of nonstandard behavioral models, exploiting the coherent aspects of choice that those positive models typically attempt to capture.Abstract:
We propose a broad generalization of standard choice-theoretic welfare economics that encompasses a wide variety of nonstandard behavioral models. Our approach exploits the coherent aspects of choice that those positive models typically attempt to capture. It replaces the standard revealed preference relation with an unambiguous choice relation: roughly, x is (strictly) unambiguously chosen over y (written xP*y) iff y is never chosen when x is available. Under weak assumptions, P* is acyclic and therefore suitable for welfare analysis; it is also the most discerning welfare criterion that never overrules choice. The resulting framework generates natural counterparts for the standard tools of applied welfare economics and is easily applied in the context of specific behavioral theories, with novel implications. Though not universally discerning, it lends itself to principled refinements.read more
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Salience and Taxation: Theory and Evidence
TL;DR: In this article, the authors show that consumers underreact to taxes that are not salient, and that even policies that induce no change in behavior can create efficiency losses, implying that the economic incidence of a tax depends on its statutory incidence.