efficient methods of measuring welfare change and compensated income in terms of ordinary demand functions a utility maximizing consumer with a completely known system of ordinary demand functions q h p c is considered let p qo and p q be two arbitrary equilibrium situations the problem is to evaluate in which of the situations the utility is higher without knowing the utility function revealed preference theory tells that the ordinary demand functions which are in principle observable contain enough information to solve the problem remaining difficulties are therefore mainly computational we present how the compensated income c i c p qo and the compensated demand h p cl1 are calculated with arbitrary accuracy using only the ordinary demand system our two efficient algorithms also have interesting interpretations in terms of index numbers and consumer surplus measures

choice under uncertainty a model of applications for the social security disability insurance program abstract not all people with health problems are disabled some individuals with severe physical or mental impairments such as blindness or limb amputation continue to hold jobs and generally function satisfactorily they constitute however a group of potentially disabled individuals who might apply and qualify for disability insurance or other disability related benifits if they were to lose their jobs or to decide that employment offered an inadequate financial or non pecuniary reward thus disability or a health related inability to work is more than a medical problem but involves motivational and attitudinal factors we specify a model of the application process which we model as choice under uncertainty about approval of an application for disability insurance we specify the possible outcomes to the choice process of an individual in which the probability of acceptance for disability insurance is a key consideration we then estimate a joint model of labor supply and application to the disability insurance program based on the 1972 survey we then compare our results to the observed time series applications process since 1976 lastly we estimate the sensitivity of the application process to the probability of acceptance and the level of benifits

ex ante consumer welfare evaluation in cost benefit analysis abstract public projects and policies are normally evaluated ex ante i e while consumers may still be uncertain about future prices income levels interest rates and preferences this paper extends the theory of ex ante consumer welfare evaluation by developing a 2 period model with multiple sources of uncertainty it provides insights into the influence of temporal uncertainty on the empirical measurement of ex ante willingness to pay

perception theoretic foundations of weighted utilitarianism we provide a microfoundation for a weighted utilitarian social welfare function that reflects common moral intuitions about interpersonal comparisons of utilities if utility is only ordinal in the usual microeconomic sense interpersonal comparisons are meaningless nonetheless economics often adopt utilitarian welfare functions assuming that comparable utility functions can be calibrated using information beyond consumer choice data we show that consumer choice data alone are sufficient as suggested by edgeworth 1881 just noticeable differences jnds provide a common unit of measure for interpersonal comparisons of utility differences we prove that a simple monotonicity axiom implies a weighted utilitarian aggregation of preferences with weights proportional to individual jnds

fair management of social risk we provide a general method for extending social preferences defined for riskless economic environments to the context of risk and uncertainty we apply the method to the problems of managing unemployment allowances in the context of macroeconomic fluctuations and catastrophic risks in the context of climate change the method guarantees ex post fairness and pays attention to individuals risk attitudes while ensuring rationality properties for social preferences revisiting basic ideas from harsanyi s celebrated aggregation theorem harsanyi 1955 the social preferences that we obtain do not always take the form of an expected utility criterion but they always satisfy statewise dominance when we require social preferences to be expected utilities we obtain a variant of harsanyi s result under a weak version of the pareto principle and a maximin criterion under a stronger pareto requirement whenever the ex post social ordering does not depend on people s risk attitudes we also show how non expected utility individual preferences can be accommodated in the approach

economic welfare evaluations for producers under uncertainty the validity of producer and consumer surplus measures of firm welfare under risk is examined under constant absolute risk aversion and output price uncertainty only these measures are an exact measure of firm welfare as defined by compensating variation equivalent variation or the change in the certainty equivalent under decreasing absolute risk aversion qualitative comparisons of various measures are discussed for example producer s surplus as measured by the area above the uncompensated risk averse supply curve overstates the compensating variation of a change in expected price of output procedures for calculating firm welfare under production uncertainty and a variety of economic environments are proposed generally these procedures are applicable only when absolute risk aversion is constant

welfare measurement for environmental improvements using the hedonic model the case of nonparametric marginal prices abstract research in environmental and natural resource economics frequently requires the use of hedonic models because of the differentiated products involved this is true for studies of the relationship between environmental quality and property values or wages or between the characteristics of a recreation site and the demand for its services an obvious use of such studies is in estimating willingness to pay for improvements with differentiated products there are usually nonlinear hedonic price schedules and thus nonlinear budget constraints this makes welfare analysis difficult because standard duality results no longer hold this paper develops a technique for estimating a psuedo demand system that can be used to derive exact measures of consumer welfare change similar techniques are developed for producers with a psuedo profit function that can be converted to an exact measure of the change in quasi rents or rents the paper also shows that the distance function can be used to develop an ex ante measure of welfare change

labor supply deadweight loss and tax reform act of 1986 a nonparametric evaluation using panel data abstract tax reform act of 1986 tra 1986 has provided an invaluable source of variation in tax rates to study the effects of tax reforms on labor supply in the us most existing studies exploiting variation generated by tra 1986 have used cross sectional variation in tax rates or assumed a linear labor supply function or have not couched their analysis in a nonlinear budget set framework this paper uses the drastic variation in the budget set induced by tra 1986 as a source of identification and combines two novel approaches to estimate behavioral effects of tax reforms i first use nonparametric estimation methods with nonlinear budget sets blomquist soren newey w 2002 nonparametric estimation with nonlinear budget sets econometrica 70 6 2455 2480 to estimate a labor supply function using waves of psid just before and after tra 1986 nonparametric method developed in hausman and newey hausman j whitney newey 1995 nonparametric measurement of exact consumer s surplus and deadweight loss econometrica 63 1145 76 is then applied to estimate the deadweight loss from tra 1986 the nonparametric estimate of the compensated wage elasticity is 0 22 i find that tra 1986 had a small but positive effect on labor supply of men of about 2 at the sample mean tra 1986 was associated with robust reduction in deadweight loss from the pre tra 1986 level and this reduction is positively correlated with income and wages

nonparametric estimation of the impact of taxes on female labor supply this paper proposes a simple extension of nonparametric estimation methods for nonlinear budget set models derived in blomquist and newey 2002 to censored dependent variables the nonparametric method is applied to estimate female labor supply elasticities using data on married women from the 1985 and 1989 waves of the panel study of income dynamics exploiting the substantial variation in budget sets caused by the tax reform act of 1986 as a source of identification the estimated wage elasticities from this new method are 0 56 overall and 0 27 on the intensive margin the income elasticity estimates are close to 0 67 overall and 0 13 on the intensive margin compared with the linear labor supply model the estimated elasticities are usually larger for the nonparametric specifications that account for nonlinear budget sets copyright 2010 john wiley sons ltd

estimating the precision of welfare measures abstract three methods for constructing standard deviation and or confidence intervals for welfare estimates have been employed in the recreation demand literature a taylor s series approximation the bootstrap and a method proposed by krinsky and robb this paper presents the results of two sets of simulation experiments designed to examine the accuracy of these methods the first simulation examines the methods accuracy in estimating the standard deviation of welfare estimates the second simulation examines the accuracy of the methods in constructing confidence intervals

estimating the general equilibrium benefits of large changes in spatially delineated public goods the purpose of this article is to report a new approach for measuring the general equilibrium willingness to pay for large changes in spatially delineated public goods such as air quality we estimate the parameters of a locational equilibrium model and compute equilibria for alternative scenarios characterizing the availability of public goods within a system of communities welfare measures take into consideration the adjustments of households in equilibrium to nonmarginal changes in public goods the framework is used to analyze willingness to pay for reductions in ozone concentrations in southern california between 1990 and 1995

errors in the numerical assessment of the benefits of price stabilization this paper presents a simple computational procedure for determining a consumer s willingness to pay to have a price stabilization policy implemented numerical simulations are then provided which demonstrate that the commonly used expected surplus measures whether hicksian or marshallian can in fact seriously misstate the true benefits of price stabilization these simulations also illustrate the extent to which the results may be dependent upon the assumptions made implicitly or explicitly regarding the consumer s attitudes toward risk thereby underscoring the need to conduct sensitivity analyses to determine the robustness of cost benefit assessments with respect to these assumptions

on measuring the benefits of lower transport costs despite large amounts invested in rural roads in developing countries little is known about their benefits this paper derives an expression for the willingness to pay for a reduction in transport costs from the canonical agricultural household model and uses it to estimate the benefits of a hypothetical road project estimation is based on novel cross sectional data collected in a small region of madagascar with enormous yet plausibly exogenous variation in transport cost a road that essentially eliminated transport costs in the study area would boost the incomes of the remotest households those facing transport costs of about usd 75 ton by nearly half mostly by raising non farm earnings this benefit estimate is contrasted to one based on a hedonic approach

the welfare effects of environmental taxation on a green market where consumers emit a pollutant this paper examines the welfare impact of emission taxes and subsidies in a green market where consumers emit a pollutant through their usage of products produced by duopolists for this purpose we employ a discrete continuous model including both consumer choice and usage of an environmentally differentiated product in a utility consistent framework the findings indicate that an emission tax is always welfare dominant over a subsidy on consumer purchases of the clean product because of its contribution to a reduction in environmental damage it does this by both inducing firms to improve the environmental qualities of their products and by constraining consumer usage of these products

approximating a cost of living index from demand functions a retrospect abstract this paper discusses several methods for approximating a cost of living index that are based on knowledge of the demand functions centered around a recently discovered article by malmquist it discusses the mean of over and undercompensation frisch s double expenditure method and some proposals of vartia

cellular telephone new products and the cpi since their introduction in 1983 cellular telephones adoption has grown at 25 35 per year at year end 1997 about 55 million cellular telephones were in use in the united states the bureau of labor statistics bls did not know that cellular telephones existed at least in terms of calculating the consumer price index cpi until 1998 when they were finally included in the cpi omitting cellular telephones from the cpi created a significant bias i estimate a bias in the bls estimate of the telecommunications services index of between 8 1 9 per year because of the omission of the cellular telephone rather than telecommunications service prices increasing at about 1 1 per year the correct calculation has them decreasing at about 8 per year omission of new goods from the cpi for significant periods of time leads to important bias in the calculation of the cpi

from gallons to miles a disaggregate analysis of automobile travel and externality taxes abstract policymakers have prioritized increasing highway revenues as rising fuel economy and a fixed federal gasoline tax have led to highway funding deficits we use a novel disaggregate sample of motorists to estimate the effect of the price of a vehicle mile traveled on vmt and we provide the first national assessment of vmt and gasoline taxes that are designed to raise a given amount of revenue we find that a vmt tax dominates a gasoline tax on efficiency distributional and political grounds when policymakers enact independent fuel economy policies and when the vmt tax is differentiated with externalities imposed per mile

regional welfare loss meaures of the 1973 oil embargo a numerical methods approach 1987 regional welfare loss meaures of the 1973 oil embargo a numerical methods approach applied economics vol 19 no 10 pp 1317 1327

can weak substitution be rehabilitated this paper develops a graphical analysis and an analytical model that demonstrate how weak substitution can be used for non market valuation weak complementarity and weak substitution represent preference restrictions that allow us to develop equivalent price changes to describe quantity or quality changes in non market goods the price changes are hicksian equivalents in that they yield the same utility changes as would the quantity or quality changes after discussion of several potential applications of weak substitution the paper develops the parallel between the restriction and recent strategies from modeling differentiated goods

non price equilibria for non marketed goods abstract as part of the resources for the future frontiers of environmental economics collection of papers we consider the problem of general equilibrium feedback effects in non price space as they relate to non market valuation our overall objective is to examine the extent to which non price equilibria arising from both simple and complex sorting behavior can be empirically modeled and the resulting differences in partial and general equilibrium welfare measures quantified after motivating the problem in general we consider the specific context of congestion in recreation demand applications which we classify as the outcome of a simple sorting equilibrium using both econometric and computable general equilibrium cge models we examine the conceptual and computational challenges associated with this class of problems and present findings on promising solution avenues we demonstrate the relevance of accounting for congestion effects in recreation demand with an application to lake visits in iowa our econometric and cge results confirm that for some plausible counterfactual scenarios substantial differences exist between partial and general equilibrium welfare estimates we conclude the paper by describing tasks that are needed to move forward research in this area

presidential address antitrust restrictions on single firm strategies this article offers an overview of selected developments in the law and economics of antitrust regulation of single firm strategies the strategy generating the most cases historically is resale price maintenance here the law has moved sharply in both canada and the u s towards more solid economic foundations yet a gap between the law and economics remains the economics of resale price maintenance is reviewed within a framework that is much simpler and more general than the existing literature the law on a second strategy predatory pricing represents in my view a success story for the influence of economic theory in spite of the absence of a single accepted theory of predatory pricing the remaining single firm strategies are concerned largely with the exclusion by a dominant firm of rivals from a market i review with application to cases the two most basic questions concerning exclusionary strategies are exclusionary anticompetitive contracts ever entered into voluntarily by market participants on the other hand is complete or substantial foreclosure of a market through exclusionary strategies necessarily anticompetitive cette allocution presidentielle a l association canadienne d economique presente une vue d ensemble des developpements dans le droit et l economie de la reglementation antitrust sur les strategies d une firme unique la loi sur la strategie qui genere historiquement le plus de cas le maintien du prix de revente a change dramatiquement au canada et aux etats unis et derive vers une politique qui a des assises economiques solides mais il reste un ecart entre le droit et l economie on reexamine l economie du maintien du prix de revente a l aide d un cadre d analyse qui est a la fois plus simple et plus general que ce qui existe dans la litterature specialisee la loi pour ce qui est d une seconde strategie prix d eviction est a mon avis une grande reussite pour la science economique malgre l absence d une seule theorie du prix d eviction generalement acceptee un troisieme ensemble de strategies concerne l exclusion de ses rivaux d un marche par la firme dominante l auteur reexamine avec un recours extensif aux cas les deux questions de base pour ce qui est des strategies d exclusion est ce que les participants sur un marche entrent jamais volontairement dans un arrangement contractuel qui exclut et est anticoncurrentiel d autre part est ce que la saisie complete ou substantielle d un marche par des man uvres d exclusion est necessairement anticoncurrentielle

improving environmental valuation estimates through consistent use of revealed and stated preference information abstract environmental valuation data from stated and revealed preference methods are integrated into a unified model of preferences for environmental quality improvement that identifies the use and nonuse components of the total value estimate this articulates clearly what parts of the total value estimate come from each type of data and permits tests of whether estimated preferences satisfy weak complementarity between the environmental good of interest and related private goods the statistical advantages of using more information for the valuation problem are exploited while retaining flexibility to identify value estimates from any individual method of analysis

applied welfare economics with discrete choice models economists have been paying increasing attention to the study of situations in which consumers face a discrete rather than a continuous set of choices such models are potentially very important in evaluating the impact of government programs upon consumer welfare but very little has been said in general regarding the tools of applied welfare economics indiscrete choice situations this paper shows how the conventional methods of applied welfare economics can be modified to handle such cases it focuses on the computation of the excess burden of taxation and the evaluation of quality change the results are applied to stochastic utility models including the popular cases of probit and logit analysis throughout the emphasis is on providing rigorous guidelines for carrying out applied work this abstract was borrowed from another version of this item

duality theory for variable costs in joint production duality methods for incomplete systems of consumer demand equations are adapted to the dual structure of variable cost functions in joint production this allows identification of necessary and sufficient restrictions on technology and cost so that con ditional factor demands can be written as functions of input prices fixed inputs and cost these are observable when variable inputs are chosen and committed to production hence the identified restrictions allow ex ante conditional demands to be studied using observable data this class of production technologies is consistent with all von neu mann morgenstern utility functions when ex post production and or output prices are un certain

exact consumer s surplus and deadweight loss consumer s surplus is a widely used tool in applied welfare economics both economic theorists and cost benefit analysis often use consumer s surplus despite its somewhat dubious reputation the basic idea is to evaluate the value to a consumer or his willingness to pay for a change in price of a good from say pricep to pricep because price changes affect consumer welfare an evaluation of this effect is often a key input to public policy decisions yet consumer s surplus is probably the most controversial of widely used economic concepts both paul samuelson and ian little conclude that the economics profession would be better off without it it is my feeling of the situation that substantial agreement exists on the correct quantities to be measured the amount the consumer would pay or would need to be paid to be just as well off after the price change as he was before the price change the quantities correspond to john hicks compensating variation measures an alternative measure which takes ex post price change utility as the basis of comparison is hicks equivalent variation the controversy arises in the measurement of these quantities the usual measurement procedure is to use the area to the left of the marshallian market demand curve between two price levels jules dupuit originated this measure of welfare change and alfred marshall and hicks derived appropriate conditions for its use the primary condition for the area to the left of the demand curve to correspond to the compensating variation is to have constant marginal utility of income marshall gave this condition and if it holds the same quantity will be derived as the area to the left of the compensated hicksian demand curve this area to the left of the compensated demand curve is exactly what the compensating variation and equivalent variation measure thus the constant marginal utility of income is a sufficient condition for marshallian consumer s surplus to be equal to hicks consumer s surplus in this case arnold harberger s plea to use the welfare triangle as one half times the product of the price change times the quantity change to measure deadweight loss corresponds to the correct theoretical amount of welfare change in a recent paper robert willig derives bounds for the percentage difference between the correct measure of either the compensating or equivalent variation and the marshallian measure derived form the market demand curve his bounds which depend on the income elasticity of demand for the single good in the region of price change being considered as well as the proportion of the consumer s income spent on the good demonstrate that the marshallian consumer s surplus is often a good approximation to hicks consumer s surplus the fact that the proportion of the consumer s income spent matters as well as the income elasticity was first pointed out by harold hotelling willig contends that the approximation error will be less than the errors involved in estimating the demand curve thus he hopes to remove the need for apology that applied economists often need to give to theorists who remark on the inappropriateness of using marshallian consumer s surplus to measure welfare change however in this paper i show that for the case primarily considered by willig of a single price change which is also the situation in which consumer s surplus is often used in applied work no approximation is necessary professor of economics massachusetts institute of technology and research associate national bureau of economic research i would like to thank peter diamond erwin diewert daniel mcfadden robert merton robert solow hal varian joel yellin and the referees for help and comments research support from the national science foundation is acknowledged the reason that we still have two rather than one of samuelson s six measures of consumer s surplus arises from an index number problem of the correct basis for the welfare comparison i will give both measures but plan to concentrate on the compensating variation

compensating variation consumer s surplus and welfare the compensating variation was defined by j r hicks 1942 as the amount one would have to deduct from a person s income to make him just as well off after a change in prices and income as he had been in the initial situation if the compensating variation is positive the individual is better off under the new situation since the compensating variation furnishes a uniquely defined numerical cardinal indicator of welfare improvement it provides an implicit ranking of alternative prospective situations not only relative to the initial situation but also relative to each other in practice this appears to be how this and other tools of cost benefit analysis are actually used one is interested in knowing not only whether a particular bridge or a particular excise tax will lead to an improvement in welfare but which out of a set of alternative bridges or alternative tax systems will improve welfare the most 1 in this paper we analyze conditions under which the compensating variation can be validly used in this generalized sense these turn out to be precisely the same as conditions previously derived see our 1976 paper for the valid use of consumer s surplus as a welfare measure in our final section we analyze the problem of deriving the generalized equivalent and compensating variations either exactly or approximately from observable demand functions by means of generalizations of or alternatives to consumer s surplus

welfare measurement in the household production framework the household production approach to consumer behavior developed from the work of gary becker william gorman and kelvin lancaster has considerable descriptive appeal in modelling the decisions of households the approach derives from the observation that households frequently purchase market goods that do not yield utility directly but are combined to produce commodity service flows which the household values thus observed behavior is determined by household production technology as well as by tastes the advantage of this distinction is that we can pose reasonable hypotheses about characteristics of technology though we rarely possess useful a priori information regarding tastes the putative advantages of the household production approach are questioned on empirical and conceptual grounds by robert pollak and michael wachter 1975 they show that jointness in production or nonconstant returns to scale cause implicit commodity prices to depend on both tastes and technology raising serious econometric difficulties in the estimation of commodity demand functions in addition since commodity prices become functions of the commodity bundle consumed the analogy to traditional demand theory breaks down joint production occurs when a good enters several production processes simultaneously or equivalently when a good in one production process also enters directly into the individual s utility function the most common example is time which provides the context for all production processes and is often associated with the production of several commodities simultaneously since joint production in the household is likely to be pervasive the critique by pollak and wachter cannot be ignored in response to the comment by william barnett pollak and wachter 1977 suggest dispensing with the notion of commodity prices and treating the demand for commodities as a function of goods prices this approach confounds tastes and technology but it eliminates the troublesome concept of commodity prices as parameters when in fact they are likely to be endogenous in this paper we show that results from positive analysis such as the critique by pollak and wachter have implications for the use of the household production framework for welfare analysis the household production function approach has had considerable appeal for measuring welfare effects of public actions in the environmental and natural resource areas gardner brown john charbonneau and michael hay elizabeth wilman yet traditional approaches to welfare measurement are frequently inapplicable we argue that welfare measurement in this framework is complicated by the difficulties of unravelling tastes and technology we extend pollak and wachter s results by demonstrating that marshallian demand functions for commodities cannot be uniquely defined thus marshallian functions cannot be used to derive exact compensated functions in the manner of jerry hausman and of george mckenzie and i f pearce nor can compensating and equivalent variation measures be bounded by marshallian consumer s surplus estimates following robert willig in fact duality results that normally allow us to move between marshallian and hicksian functions are not assistant and associate professors respectively department of agricultural and resource economics university of maryland college park md 20742 this paper is scientific article no a3404 contribution no 6476 of the maryland agricultural experiment station we wish to thank darrell hueth james opaluch v kerry smith and elizabeth wilman for comments on an earlier draft

manipulation of preferences and relative utilitarianism abstract given n agents with who wish to divide m commodities consider the n person noncooperative game with strategies consisting of concave increasing utility functions and whose outcomes are the relative utilitarian solution any constrained equal income competitive equilibrium allocation for the true utilities is shown to ba a nash equilibrium outcome for the noncooperative game conditions are presented under which these are the only pure strategy equilibrium outcomes journal of economic literature classification numbers c72 c78 d71

what s the use welfare estimates from revealed preference models when weak complementarity does not hold abstract in this paper we consider the theoretical and empirical ramifications of welfare measurement in revealed preference models when weak complementarity does not hold in the context of a kuhn tucker model of recreation demand we show that while it is possible to estimate preferences that do not appear to exhibit weak complementarity the calculation of welfare measurements from these models requires a cardinal interpretation of preferences that cannot be tested furthermore we reiterate the under appreciated fact that even traditional use value estimates require a cardinal restriction on preferences that while often intuitive also cannot be tested we demonstrate empirically that the choice of restrictions can have significant ramifications as use value estimates can vary based on the assumed preference structure

evaluating the performance of alternative municipal water tariff designs quantifying the tradeoffs between equity economic efficiency and cost recovery the design of municipal water tariffs requires balancing multiple criteria such as financial self sufficiency for the service provider equity among customers and economic efficiency for society a modeling framework is developed for analyzing how alternative municipal water tariff designs affect these three criteria it is then applied to a hypothetical community in which a municipal water utility provides metered piped water and wastewater services to 5 000 households we analyze how the shift from a uniform volumetric tariff to different increasing block tariff ibt designs affects households water use and water bills and how these changes in turn affect measures of equity and economic efficiency for two different financial self sufficiency targets we calculate how changes in assumptions about 1 the correlation between household income and water use and 2 households response to average or marginal prices affect the tariffs performance in terms of these three criteria the results show that ibts perform poorly in terms of targeting subsidies to low income households regardless of the magnitude of financial subsidies that a utility receives from high level government when cost recovery is low the distribution of subsidies under ibts is even worse if the correlation between water use and household income is high ibts introduce price distortions that induce economic efficiency losses but we show that these welfare losses are relatively small especially when households respond to average prices

severance taxes and market structure in an exhaustible resource industry abstract this paper compares the effects of a severance tax on profit maximizing competitive and monopolistic firms which explore and produce an exhaustible resource the producers response to the tax are studied and the deadweight losses from the tax are calculated time paths of exploratory effort extraction and price are computed severance taxes lead both producers to reduce production and exploration and cause a shift in the time path for prices the deadweight losses from the tax are low especially in competition the losses in the monopoly case are relatively higher with the tax burden falling mainly on the monopolistic producer

axiomatic foundations of hicksian measures of welfare change abstract the aggregate hicksian measures i ev i and i cv i are characterized by three simple properties one property concerns the ranking of two states the measures are paretian a second property expresses the postulate that welfare changes are to be evaluated in money the third one deals with redistributions of incomes distributional considerations are taken into account by employing variable distributional weights i

recovering hicksian consumer surplus within a collective model hausman s method for the household the purpose of this paper is to describe the implications of the collective model of household behavior for the methods used to estimate the economic value of non marketed environmental resources after demonstrating how the separability restrictions inherent in the collective model allow individual preference and household income allocation choices to be distinguished the paper demonstrates how the framework can be used to recover hicksian consumer surplus an algebraic example is used to illustrate how the framework can be used in valuing environmental resources

the benefits of in kind government programs abstract in this paper i present a methodology to calculate the benefits of in kind programs such as public housing which restrict consumption of some goods to the levels offered by the government most previous studies begin with an a priori specification of the direct utility function i begin with the ordinary demand function and then integrate demand to recover the indirect utility function and the expenditure function i argue that this approach gives additional flexibility in choosing a functional form which best describes the data i then use this methodology to estimate the benefits of the u s government s section 8 housing program

comparing open ended choice experiments and experimental auctions an application to golden rice we use two experimental valuation methods to estimate consumer demand for genetically modified golden rice the first is an open ended choice experiment oece where participants name the quantities of golden rice and conventional rice demanded at each of several price combinations one of which will be randomly chosen as binding this allows us to estimate market demand by aggregating demand across participants this estimate of market demand also allows us to estimate own price elasticity and consumer surplus for golden rice comparing willingness to pay wtp estimates from the oece with those from a uniform price auction we find that oece wtp estimates exhibit less affiliation across rounds and the effects of positive and negative information under the oece are more consistent with prior expectations and existing studies we also find that while auction wtp estimates more than double across five rounds oece wtp estimates are stable across rounds and are always roughly equal to those from the final auction round

on measuring the value of a nonmarket good using market data we use line integral theory to lay out in a more general theoretical framework the conditions under which it is possible to measure with market data the welfare effects of a change in a nonmarket good we present in detail a numerical method of measuring the value of nonmarket goods using market data under either weak neutrality or weak complementarity our numerical method is more flexible than the existing analytical method because it can be used with any well behaved marshallian demand function and can be used even when the willig condition does not hold

markets and the measurement of value consumer s surplus and the hicksian measures of compensating and equivalent variation have a long history in empirical economic analysis however at both the theoretical and the empirical level economists psychologists and public choice theorists have not been able to reach a significant consensus regarding the usefulness of these measures economic theorists have only recently dissected the differences which exist between alternative welfare measures in a systematic and transparent fashion in willig 1976 hausman 1981 and takayama 1984 the role of income in determining the correct theoretical measurements of compensating and equivalent variations was exposed during this same period of time theoretical results obtained by the psychologists kahneman and tversky 1979 indicated that the fundamental structure of preferences upon which the theoretical economic results are based is flawed the so called prospect theory of decision developed by these authors indicated that measured of welfare based upon payment will differ from measures of welfare based upon compensation because of the fact that individuals will value losses at a greater marginal rate than gains this difference was then predicted to dominate any income effect important in the economist s model finally this period recorded the emergence of many demand revealing processes which provide individuals with appropriate incentives to accurately reveal their preferences as summarized in coursey and schulze 1986 one interpretation of the literature on incentive compatibility suggests a set of well defined guidelines for improving both the accuracy and validity of compensating and equivalent variation measures these differences in professional preferences regarding what is important in improving the accuracy of economic welfare measurements led john

subgame perfect implementation of bargaining solutions abstract this paper provides simple four stage game forms that fully implement a large class of two person bargaining solutions in subgame perfect equilibrium the solutions that can be implemented by our game forms are those that maximize a monotonic and quasi concave function of utilities after normalizing each agent s utility function so that the maximum utility is 1 and the utility of the disagreement outcome is 0 this class of solutions includes the nash kalai smorodinsky and relative utilitarian solutions the game forms have a structure of alternating offers and contain no integer device

welfare losses due to market power hicksian versus marshallian measurement this paper warns against the use of marshallian welfare loss in applied analysis of market power we show how to compute the hicksian deadweight loss from an ordinary demand then from an experiment using real data on twenty one sectors of the french food industry we find that the marshallian deadweight loss poorly approximates the exact hicksian measure hence it is advisable to use the latter in applied welfare analysis copyright 2001 oxford university press

quality adjusted price indexes and the willig condition abstract this paper provides a graphical explanation of willig s condition for developing consistent price indexes for quality change the framework also describes how the single crossing condition generalizes the willig condition

aggregate risk and the pareto principle abstract in the evaluation of public policies a crucial distinction is between plans that involve purely idiosyncratic risk and those that generate correlated or aggregate risk while natural this distinction is not captured by standard utilitarian aggregators in this paper we revisit harsanyi s 1955 celebrated theory of preferences aggregation and develop a parsimonious generalization of utilitarianism the theory we propose captures sensitivity to aggregate risk in large populations and can be characterized by two simple axioms of preferences aggregation

measuring economic welfare new methods preface 1 an introduction to the money metric 2 the marginal utility of money as an integrating factor 3 calculation of the money metric 4 the approach of dupuit and marshall 5 the hicksian approach 6 approximations based on consumer surplus 7 a reconsideration of the theory of index numbers 8 the money metric as a basis for calculation of social welfare functions 9 measurement of the social costs of monopoly 10 a final comment and conclusion references index

welfare and distribution effects of water pricing policies in this paper distribution and welfare effects of changes in block price systems are evaluated a method is discussed to determine for a marshallian demand function equivalent variation in case of a block price system the method is applied to compare for the metropolitan region of sao paulo alternative pricing policies on the basis of their demand welfare and distribution effects of changing water prices results show that there is a trade off between average welfare and income distribution a pro poor price system may result in lower average welfare than a flat price system but in higher individual welfare for the poor moreover there is a trade off between revenues for the water company and income distribution even though pro poor price systems may not be as good for average welfare as flat price systems their direct effects on poverty are important introducing pro poor price systems however may have financial consequences for the water companies

densities rather than shares improving the measurement of congestion in recreation demand models while economists have successfully addressed the endogeneity of congestion in revealed preference approaches little attention has been devoted to measuring congestion in fact most applications measure congestion as a simple count of users or at best consider the shares of users defined as the proportion of people visiting a site during the course of the season however only when all sites have a similar size or length and the total number of visitors is constant over time can these measures be used as a proxy for congestion in general these assumptions are unrealistic in this paper we examine site density measures rather than participation shares as a measure of congestion we show that endogeneity problems can be addressed using a control function approach and demonstrate that the density of users leads to more statistically significant coefficients of congestion

recovering weakly complementary preferences abstract this paper demonstrates a method for recovering weakly complementary expenditure and indirect utility functions while integrating back from marshallian demand specifications that do not intrinsically embody weak complementarity weak complementarity of a good with quality provides information about how the constant of integration over price must behave with respect to quality and this information can be incorporated into the process of recovering preferences the weakly complementary expenditure and indirect utility functions are recovered for the linear demand specification and for the stone geary utility function with any value of the subsistence parameter

let s agree that all dictatorships are equally bad this paper shows that a minimal degree of consideration for other people s well being enables society to agree that one social policy is the best i offer axioms that imply that this best policy maximizes a weighted sum of individual utilities the weight of each individual is the inverse of his or her maximal possible utility from social endowments the suggested policy is not sensitive to the choice of the von neumann morgenstern utilities the key axiom is that individuals agree that giving all the endowments always to one person is as bad as giving them to any other person

consumer s surplus without apology the purpose of this paper is to settle the controversy surrounding consumer s surplus and by so doing to validate its use as a tool of welfare economics i will show that observed consumer s surplus can be rigorously utilized to estimate the unobservable compensating and equivalent variations the correct theoretical measures of the welfare impact of changes in prices and income on an individual i derive precise upper and lower bounds on the percentage errors of approximating the compensating and equivalent variations with consumer s surplus these bounds can be explicitly calculated from observable demand data and it is clear that in most applications the error of approximation will be very small in fact the error will often be overshadowed by the errors involved in estimating the demand curve the results in no way depend upon arguments about the constancy of the marginal utility of income consequently this paper supplies specific empirical criteria which can replace the apologetic caveats frequently employed by those who presently apply consumer s surplus moreover the results imply that consumer s surplus is usually a very good approximation to the appropriate welfare measures to preview below i establish the validity of these rules of thumb for a

the taxation of drivers and the choice of car fuel type in this paper the choice of the car fuel type is studied in the dutch situation three types are important gasoline diesel and lpg with 80 of the cars using gasoline incentives for using diesel or lpg are provided by the tax system that implies higher fixed cost but lower variable cost for users of these fuel types we start by studying fuel type choice on the basis of a logit model and move on to estimate demand functions for kilometres driven for social purposes while correcting for the possible selectivity bias we find that diesel and lpg are in general regarded as inferior alternatives but that monetary incentives are sufficiently strong to overcome this hurdle for drivers with a large demand for kilometres we also find that there are significant effects of the lower variable cost for diesel and lpg drivers on their demand for kilometres the conclusions are confirmed by estimation of a structural model in which fuel type choice and demand for kilometres are consistently explained on the basis of one set of preferences and unobserved heterogeneity is taken into account

approximating compensated income from ordinary demand functions abstract this paper proposes a re versible s econd or der t aylor resort approximation to compensated income from ordinary demand functions resort yields the malmquist vartia m v algorithm as a first order case using the slutsky equation resort obtains the substitution matrix and checks it for symmetry and negative semi definiteness to validate compensated income this validation procedure is an improvement over m v

inverse demand systems and welfare measurement in quantity space most studies of welfare or cost benefit analyses are concerned with the welfare effects of price changes 11 19 27 33 50 there are however many situations in which policy options are directly related to quantity changes the welfare effects of price changes are analyzed with the traditional demand system in which commodity quantities are determined as functions of their prices the welfare effects of quantity changes on the other hand are associated with the inverse demand system in which commodity prices are dependent on their quantities in conventional welfare analysis of price change prices are taken to be exogenous or predetermined while quantities are endogenous in contrast in welfare analysis of quantity changes quantities are exogenous while prices are endogenous price based or dual welfare measures are relevant when there are well functioning competitive markets and quantities are fully adjusted to changes in prices on the other hand quantity based or primal welfare measures are useful in situations where there are constraints on commodity quantities or when transaction costs impede consumers from fully adjusting to changes in prices the choice between priceand quantity based welfare measures is empirical and proper measurement of welfare effects requires the knowledge as to which variable price or quantity is the exogenous one for individual consumers it may be reasonable to assume that the supply of commodities is perfectly elastic and therefore prices can be taken as exogenous but this assumption may not be tenable for consumers in the aggregate or if highly aggregated economy wide data are used to estimate demand relations at the aggregate level quantities are more properly viewed as exogenous than are prices although individual consumers make their consumption decisions based on given prices the quantities of commodities are predetermined by production at the market level and prices must adjust so that the available quantities are consumed 28 1 2

further results on willingness to pay for nonmarket goods abstract some implications of substitution relationships between private and public goods for measuring the value of changes in nonmarket goods such as environmental quality are explored if a market good is hicks neutral to quality for some price vector the total value of discrete changes in quality consisting of both use and nonuse value can be measured from empirical demand coefficients a plausible motivation for neutrality is developed in the contexts of specifying incomplete demand systems for weak complements to quality and measuring nonuse value when the consumption of weak complements is held at zero previous results on bounding marginal willingness to pay for nonmarket goods are also strengthened

expenditure function estimates of the efficiency and distributive impact of indirect taxes in the united kingdom abstract this paper uses the expenditure function to consider the efficiency and distributional impact of indirect taxes in the united kingdom estimates of the parameters of the linear expenditure system of demand equations are employed to measure the compensating variation and equivalent variation costs of taxes on households in different income groups in addition distributional weights are used to consider the overall impact of different taxes and tax changes on social welfare finally we consider other types of demand system estimates which might be used in this kind of exercise

a control function approach to endogeneity in consumer choice models abstract endogeneity arises for numerous reasons in models of consumer choice it leads to inconsistency with standard estimation methods that maintain independence between the model s error and the included variables the authors describe a control function approach for handling endogeneity in choice models observed variables and economic theory are used to derive controls for the dependence between the endogenous variable and the demand error the theory points to the relationships that contain information on the unobserved demand factor such as the pricing equation and the advertising equation the authors approach is an alternative to berry levinsohn and pakes s 1995 product market controls for unobserved quality the authors apply both methods to examine households choices among television options including basic and premium cable packages in which unobserved attributes such as quality of programming are expected to be correlated with price without correcting for endogeneity aggregate d

rules versus discretion in food storage policies this article compares various policies in a rational expectations food storage model with risk averse consumers and missing insurance markets calibrated to represent a developing country i consider an optimal storage policy under discretion and two optimal simple rules a constant private storage subsidy and a price band the storage subsidy achieves welfare gains similar to the discretionary policy the price band maximizing social welfare is a price peg scheme the floor and ceiling prices are the same and the capacity constraint represents 11 of the steady state production level this price band achieves three quarters of the gains from the optimal policy under discretion

equity and efficiency aspects of rent control an empirical study of new york city modem rent controls arose during world war ii to deal with the war related influx into urban areas since then numerous cities have either considered adopted or eliminated rent controls the policy debate about the desirability of rent controls continues unabated and becomes particularly acute when high inflation rates drive up rents rapidly rent controls have both efficiency and distributional consequences the economics literature has produced theoretical insights about the inefficiencies created by rent controls this literature is frequently cited by opponents of rent controls who argue that the efficiency costs of rent controls are manifested in a decaying housing stock and altered mobility patterns proponents of rent control invariably argue that the distributional impacts of rent controls outweigh efficiency costs considering the large number of cities that have investigated or adopted rent controls relatively little empirical research documents either the efficiency or distributional effects of rent controls the most notable exceptions are the studies of new york city by de salvo 3 olsen 13 and roistacher 15 and the studies of los angeles by rydell et al 16 and fallis and smith 4 more recently linneman lo and marks 12 have further examined ramifications of rent controls in new york city and vancouver this paper fills some gaps in knowledge about the effects of rent controls we examine rent controls in new york city in 1968 using the new york city housing and vacancy survey 2 the paper extends the work of olsen 13 although there are important differences in both the questions addressed and methodology used this paper examines in detail the distributional consequences of rent controls for new york city residents both

estimating equilibrium models of sorting across locations while there is growing interest in measuring the size and scope of local spillovers it is well understood that such spillovers cannot be distinguished from unobservable local attributes using solely the observed location decisions of individuals or firms we propose an empirical strategy for recovering estimates of spillovers in the presence of unobserved local attributes for a broadly applicable class of equilibrium sorting models our approach relies on an iv strategy derived from the internal logic of the sorting model itself we show practically how the strategy is implemented provide intuition for our instruments discuss the role of effective choice set variation in identifying the model and carry out a series of monte carlo simulations to demonstrate performance in small samples

the veil of public ignorance abstract a theory of cooperative choice under incomplete information is developed in which agents possess private information at the time of contracting and have agreed on a utilitarian standard of evaluation governing choices under complete information the task is to extend this standard to situations of incomplete information our first main result generalizes harsanyi s j polit econ 63 1955 309 classical result to situations of incomplete information assuming that group preferences satisfy bayesian coherence and interim pareto dominance these axioms are mutually compatible if and only if a common prior exists we argue that this result partly resolves the impossibility of bayesian preference aggregation under complete information

rationalizing choice with multi self models this paper studies a class of multi self decision making models proposed in economics psychology and marketing in this class choices arise from the set dependent aggregation of a collection of utility functions where the aggregation procedure satises some simple properties we propose a method for characterizing the extent of irrationality in a choice behavior and use this measure to provide a lower bound on the set of choice behaviors that can be rationalized with n utility functions under an additional assumption scale invariance we show that generically at most ve reasons are needed for every mistake

measuring option prices from market behavior abstract option prices can be calculated from empirical demand models given knowledge of the utility theoretic structure implied by the demand specifications and the joint density of the random variables consumers face formulas for option price are given for three common weakly complementary demand specifications because it can be difficult to assess behavioral uncertainty and calculate option prices in practice knowledge of the sign of option value is important since it is a guide to the bias from ignoring this type of uncertainty the sign of option value is determined for sources of uncertainty that have proved elusive in previous treatments

a consistent semiparametric estimation of the consumer surplus distribution abstract in this paper we examine the consequences of demand function heterogeneity for the estimation of the consumer surplus in particular we show that given a linear demand function with random coefficients one can consistently estimate the consumer surplus distribution without making parametric assumptions about the coefficient distribution the approach is illustrated using data on gasoline consumption

linear demand functions in theory and practice abstract integrability conditions for an incomplete system of linear demand functions are considered the parameter restrictions consistent with integrability are identified and the structure of the conditional preference map is obtained it is found that the conditional preferences for a set of linear demand functions are either quadratic or leontief from a translated origin welfare analysis with linear demand models is also considered

a revealed preference approach to the measurement of congestion in travel cost models abstract travel cost models are regularly used to determine the value of recreational sites or particular site characteristics yet congestion a key site attribute is often excluded from such analyses one reason for this omission is that congestion is determined in equilibrium by the process of individuals sorting across sites and thus presents significant endogeneity problems this paper illustrates this source of endogeneity describes how previous research has dealt with it using stated preference techniques and describes an instrumental variables approach to address it in a revealed preference context we demonstrate that failing to address the endogeneity of congestion leads one to dramatically understate its costs we apply our technique to the valuation of a large recreational fishing site in wisconsin lake winnebago which if eliminated would induce significant re sorting of anglers amongst remaining sites ignoring congestion leads to an understatement of the lake s value by more than 50

environmental food taxes and inequalities simulation of a meat tax in sweden abstract this paper investigates the distributional effect of an environmental tax on meat in sweden if such a tax was to be introduced welfare effects are measured as compensation variation cv for multiple price changes where hicksian cross price elasticities household expenditures and price changes are included in the calculations results show that taxes on meat are almost neutral over households when expenditures on meat are used as welfare indicators and regressive if income is used this can be explained by the households similar shares of total expenditures on meat the households with the smallest income levels need to be compensated with 904 sek per person and year equivalent to euro 86 6 per year in the year 2009 exchange rate to feel that utility is not lowered if taxes on meat are introduced and the households with the highest income levels need to be compensated with 1141 sek euro 109 3 per person and year for the year 2009 these compensations correspond to 0 74 and 0 78 of total expenditures for the low and high income group respectively when instead comparing the compensation with income levels the effects correspond to 0 99 for the households with the smallest income levels and to 0 51 for the households with the largest income

information provision and consumer behavior a natural experiment in billing frequency abstract in this study i estimate a causal effect of increased billing frequency on consumer behavior i exploit a natural experiment in which residential water customers switched exogenously from bimonthly to monthly billing customers increase consumption by 3 5 5 in response to more frequent information this result is reconciled in models of price and quantity uncertainty where increases in billing frequency reduce the distortion in consumer perceptions using treatment effects as sufficient statistics i calculate consumer welfare gains equivalent to 0 5 1 of annual water expenditures heterogeneous treatment effects suggest increases in outdoor water use

price and welfare effects of a pharmaceutical substitution reform the price effects of the swedish pharmaceutical substitution reform are analyzed using data for a panel of all pharmaceutical product sold in sweden in 1997 2007 the price reduction due to the reform was estimated to average 10 and was found to be significantly larger for brand name pharmaceuticals than for generics the results also imply that the reform amplified the effect that generic entry has on brand name prices by a factor of 10 results of a demand estimation imply that the price reductions increased total pharmaceutical consumption by 8 and consumer welfare by sek 2 7 billion annually