Measuring welfare effects in models with random coefficients

Authors

  • Erik Meijer,

    Corresponding author
    1. Department of Econometrics, University of Groningen, PO Box 800, 9700 AV Groningen, The Netherlands
    • Department of Econometrics, University of Groningen, PO Box 800, NL-9700 AV Groningen, The Netherlands.
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  • Jan Rouwendal

    1. Department of Economics of Consumers and Households, Wageningen University, PO Box 8130, 6700 EW Wageningen, The Netherlands
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Abstract

In economic research, it is often important to express the marginal value of a variable in monetary terms. In random coefficient models, this marginal monetary value is the ratio of two random coefficients and is thus random itself. In this paper, we study the distribution of this ratio and particularly the consequences of different distributional assumptions about the coefficients. It is shown that important characteristics of the distribution of the marginal monetary value may be sensitive to the distributional assumptions about the random coefficients. The median, however, is much less sensitive than the mean. Copyright © 2006 John Wiley & Sons, Ltd.

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