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Measuring Welfare Changes With Nonlinear Budget Constraints in Continuous and Discrete Hours Labour Supply Models

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  • John Creedy

    (Department of Economics, The University of Melbourne)

  • Guyonne Kalb

    (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne)

Abstract

This paper examines the computation of exact welfare measures in the context of labour supply models. It is suggested that the standard method of computing compensating and equivalent variations does not allow su.ciently for the nonlinearity of the budget constraint. An exact method is suggested. The method is applied to contexts in which individuals are allowed to vary their hours continuously and where only a limited number of discrete hours of work are available. Discrete hours models have in recent years been used in view of the substantial econometric advantages when estimating the parameters of direct utility functions.

Suggested Citation

  • John Creedy & Guyonne Kalb, 2001. "Measuring Welfare Changes With Nonlinear Budget Constraints in Continuous and Discrete Hours Labour Supply Models," Melbourne Institute Working Paper Series wp2001n09, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
    • Handle: RePEc:iae:iaewps:wp2001n09
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    References listed on IDEAS

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    11. Duncan, Alan & Weeks, Melvyn, 1997. "Behavioural tax microsimulation with finite hours choices," European Economic Review, Elsevier, vol. 41(3-5), pages 619-626, April.
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    Cited by:

    1. John Creedy & Guyonne Kalb, 2005. "Measuring Welfare Changes In Labour Supply Models," Manchester School, University of Manchester, vol. 73(6), pages 664-685, December.
    2. Guyonne Kalb, 2004. "Introduction: The Use of Simulation Models in Policy Analysis," Australian Journal of Labour Economics (AJLE), Bankwest Curtin Economics Centre (BCEC), Curtin Business School, vol. 7(1), pages 1-12, March.

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    More about this item

    JEL classification:

    • H61 - Public Economics - - National Budget, Deficit, and Debt - - - Budget; Budget Systems
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure

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