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| Dumagan, Jesus C.; Mount, Timothy D.. |
| A problem persists in measuring the welfare effects of simultaneous price and income changes because the Hicksian compensating variation (CV) and equivalent variation (EV), while unique, are based on unobservable (Hicksian) demand functions, and observable (Marshallian) demand functions do not necessarily yield a unique Marshallian consumer's surplus (CS). This paper proposes a solution by a Taylor series expansion of the expenditure function to approximate CV and EV by way of the Slutsky equation to transform Hicksian price effects into Marshallian price and income effects. The procedure is contrasted with McKenzie's "money metric" (MM) measure derived from a Taylor series expansion of the indirect utility function. MM requires a crucial assumption about... |
| Tipo: Working Paper |
Palavras-chave: Demand and Price Analysis. |
| Ano: 1991 |
URL: http://purl.umn.edu/123112 |
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| Dumagan, Jesus C.; Mount, Timothy D.. |
| This paper proposes a REversible Second-ORder Taylor (RESORT) expansion of the expenditure function to compute compensated income from ordinary demand functions as an alternative to the algorithm proposed by Vartia. These algorithms provide measures of Hicksian welfare changes and Konus-type cost of living indices. RESORT also validates the results by checking the matrix of compensated price effects. obtained through the Slutsky equation, for symmetry and negative semi-definiteness as required by expenditure minimization. In contrast, Vartia's algorithm provides no validation procedure. RESORT is similar to Vartia's algorithm in using price steps. It computes compensated income at each step "forward" from the initial to the terminal prices, and insures... |
| Tipo: Working or Discussion Paper |
Palavras-chave: Research Methods/ Statistical Methods. |
| Ano: 1995 |
URL: http://purl.umn.edu/6855 |
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