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Hicksian Surplus Measures of Individual Welfare Change When There is Price and Income Uncertainty

In: Rational Choice and Social Welfare

Author

Listed:
  • Charles Blackorby

    (University of Warwick
    Centre de la Vieille Charité)

  • David Donaldson

    (University of British Columbia)

  • John A. Weymark

    (Vanderbilt University, VU Station B)

Abstract

When there is no uncertainty, it is well known that the Hicksian compensating and equivalent variations are exact measures of individual welfare change. That is, the sign of either of these measures of Hicksian consumer’s surplus correctly identifies whether a change in prices and income makes an individual consumer better or worse off.1 It is also well known that Marshallian consumer’s surplus is not an exact measure of individual welfare change except under restrictive assumptions.2

Suggested Citation

  • Charles Blackorby & David Donaldson & John A. Weymark, 2008. "Hicksian Surplus Measures of Individual Welfare Change When There is Price and Income Uncertainty," Studies in Choice and Welfare, in: Prasanta K. Pattanaik & Koichi Tadenuma & Yongsheng Xu & Naoki Yoshihara (ed.), Rational Choice and Social Welfare, pages 195-213, Springer.
    • Handle: RePEc:spr:stcchp:978-3-540-79832-3_11
    DOI: 10.1007/978-3-540-79832-3_11
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    References listed on IDEAS

    as
    1. Hammond, Peter J., 1980. "Dual interpersonal comparisons of utility and the welfare economics of income distribution : A corrigendum," Journal of Public Economics, Elsevier, vol. 14(1), pages 105-106, August.
    2. Blackorby, Charles & Donaldson, David, 1999. "Market demand curves and Dupuit-Marshall consumers' surpluses: a general equilibrium analysis," Mathematical Social Sciences, Elsevier, vol. 37(2), pages 139-163, March.
    3. Rogerson, William P, 1980. "Aggregate Expected Consumer Surplus as a Welfare Index with an Application to Price Stabilization," Econometrica, Econometric Society, vol. 48(2), pages 423-436, March.
    4. Schmalensee, Richard, 1972. "Option Demand and Consumer's Surplus: Valuing Price Changes under Uncertainty," American Economic Review, American Economic Association, vol. 62(5), pages 813-824, December.
    5. Roberts, Kevin, 1980. "Price-Independent Welfare Prescriptions," Empirical Economics, Springer, vol. 13(3), pages 277-297, June.
    6. Frederick V. Waugh, 1944. "Does the Consumer Benefit from Price Instability?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 58(4), pages 602-614.
    7. Stennek, Johan, 1999. "The expected consumer's surplus as a welfare measure," Journal of Public Economics, Elsevier, vol. 73(2), pages 265-288, August.
    8. Anderson, James E & Riley, John G, 1976. "International Trade with Fluctuating Prices," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 17(1), pages 76-97, February.
    9. Choi, Eun Kwan & Johnson, Stanley R, 1987. "Consumer's Surplus and Price Uncertainty," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 28(2), pages 407-411, June.
    10. Blackorby, Charles & Davidson, Russell & Donaldson, David, 1977. "A Homiletic Exposition of the Expected Utility Hypothesis," Economica, London School of Economics and Political Science, vol. 44(176), pages 351-358, November.
    11. Hammond, Peter J., 1977. "Dual interpersonal comparisons of utility and the welfare economics of income distribution," Journal of Public Economics, Elsevier, vol. 7(1), pages 51-71, February.
    12. Charles Blackorby & David Donaldson & David Moloney, 1984. "Consumer's Surplus and Welfare Change in a Simple Dynamic Model," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 51(1), pages 171-176.
    13. Blackorby, Charles & Donaldson, David, 1986. "Can Risk-Benefit Analysis Provide Consistent Policy Evaluations of Projects Involving Loss of Life?," Economic Journal, Royal Economic Society, vol. 96(383), pages 758-773, September.
    14. Helms, L Jay, 1985. "Expected Consumer's Surplus and the Welfare Effects of Price Stabilization," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 26(3), pages 603-617, October.
    15. K. J. Arrow, 1964. "The Role of Securities in the Optimal Allocation of Risk-bearing," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 31(2), pages 91-96.
    16. Varian, Hal R., 1980. "Redistributive taxation as social insurance," Journal of Public Economics, Elsevier, vol. 14(1), pages 49-68, August.
    17. Blackorby, Charles & Boyce, Richard & Russell, R Robert, 1978. "Estimation of Demand Systems Generated by the Gorman Polar Form: A Generalization of the S-Branch Utility Tree," Econometrica, Econometric Society, vol. 46(2), pages 345-363, March.
    18. Turnovsky, Stephen J & Shalit, Haim & Schmitz, Andrew, 1980. "Consumer's Surplus, Price Instability, and Consumer Welfare," Econometrica, Econometric Society, vol. 48(1), pages 135-152, January.
    19. Chipman, John S & Moore, James C, 1980. "Compensating Variation, Consumer's Surplus, and Welfare," American Economic Review, American Economic Association, vol. 70(5), pages 933-949, December.
    20. Helms, L. Jay, 1984. "Comparing stochastic price regimes : The limitations of expected surplus measures," Economics Letters, Elsevier, vol. 14(2-3), pages 173-178.
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    More about this item

    Keywords

    Utility Function; Marginal Utility; Equivalent Variation; Indirect Utility Function; Welfare Change;
    All these keywords.

    JEL classification:

    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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