Columbia University

To develop an analytical framework that incorporates distributional concerns in policy evaluation

  • Amount $357,127
  • City New York, NY
  • Investigator Matthew Backus
  • Initiative Economic Analysis of Science and Technology (EAST)
  • Year 2021
  • Program Research
  • Sub-program Economic Institutions, Behavior, & Performance

“Consumer surplus” is defined as the total monetary gain to consumers when they can buy an item at a price lower than the maximum price they'd willingly pay for it. If a book costs $20 and three people would be willing to pay $40 for it, the consumer surplus of that book’s price is 3 x ($40-$20), or $60. This metric is frequently used by economists to measure the effectiveness of different policies, particularly those involving antitrust cases. Traditional calculations of social welfare that use consumer surplus, however, ignore the fact that the value of an extra dollar, known as the “marginal utility” of income, can have very different value for different people. Because adding another dollar to their paycheck means less to the affluent than it does to those who are less well off, the latter receive systematically less weight in consumer surplus calculations. This grant supports Matthew Backus at Columbia Business School, who will call attention to those weights by calculating what they actually are for different subpopulations. His goal is to develop an alternative framework to consumer-surplus analysis that makes distributional considerations more explicit. Backus’s new framework will weave distributional concerns into policy analysis, bring transparency to the ways consumer surplus measures weigh the welfare of different demographic groups, and use those weights in policy evaluation to account for distributional issues. One particularly interesting application Backus will explore is examining how public welfare measurements vary when completely different weights are assigned to various demographic groups, starting with equal weights for all.

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