Incorporating Social Welfare in Program-Evaluation and Treatment Choice

We introduce a notion of money-metric social welfare for discrete choice, under unrestricted heterogeneity and income-effects. It is the maximized indirect utility under normalization of the outside option. It also equals the amount of income necessary to achieve a given level of utility, while certain choices are prohibited. We show that the distribution of this quantity is non-parametrically identified as a closed-form functional of average structural demand for the outside option, making it useful for cost-benefit analysis and optimal targeting. An illustration with private tuition subsidies in India shows that the income-path of usage-maximizing subsidies differs significantly from welfare-maximizing ones.