  This paper develops theoretical criteria and econometric methods to rank
policy interventions in terms of welfare when individuals are loss-averse. Our
new criterion for "loss aversion-sensitive dominance" defines a weak partial
ordering of the distributions of policy-induced gains and losses. It applies to
the class of welfare functions which model individual preferences with
non-decreasing and loss-averse attitudes towards changes in outcomes. We also
develop new statistical methods to test loss aversion-sensitive dominance in
practice, using nonparametric plug-in estimates; these allow inference to be
conducted through a special resampling procedure. Since point-identification of
the distribution of policy-induced gains and losses may require strong
assumptions, we extend our comparison criteria, test statistics, and resampling
procedures to the partially-identified case. We illustrate our methods with a
simple empirical application to the welfare comparison of alternative income
support programs in the US.
