What is it about?
We introduce a Bayesian instrumental variable procedure with spatial random effects that handles endogeneity, and spatial dependence with unobserved heterogeneity. We find through a limited Monte Carlo experiment that our proposal works well in terms of point estimates and prediction. We apply our method to analyze the welfare effects generated by a process of electricity tariff unification on the poorest households. In particular, we deduce an Equivalent Variation measure where there is a budget constraint for a two-tiered pricing scheme, and find that 10% of the poorest municipalities attained welfare gains above 2% of their initial income.
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Why is it important?
We propose a Bayesian simultaneous equations system with spatial random effects suited to handling spatial dependence and heterogeneity, endogeneity, and statistical inference associated with complicated non-linear functions of the parameter estimates.
Perspectives
We propose a Bayesian approach which simultaneously involves decision theory, statistical inference and probability theory under a philosofical and mathematical coherent structure. In addition, we can perform easily inference of non-linear functions of parameters. In particular, we calculate welfair gains of poor people due to a process of tarif unification in the province of Antioquia (Colombia).
PhD Andrés Ramírez Hassan
Universidad EAFIT
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This page is a summary of: Welfare gains of the poor: An endogenous Bayesian approach with spatial random effects, Econometric Reviews, November 2016, Taylor & Francis,
DOI: 10.1080/07474938.2016.1261062.
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