Compensated Variation in Random Utility Models
AbstractIn this paper we introduce the notion of random expenditure function and derive the distribution of the expenditure function and corresponding compensated choice probabilities in the general case when the (random) utilities are nonlinear in income. We also derive formulae for expenditure and choice under price (policy) changes conditional on the initial utility level. This is of particular interest for welfare measurement because it enables the researcher to analyze the distribution of Compensating variation.
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Bibliographic InfoPaper provided by Research Department of Statistics Norway in its series Discussion Papers with number 299.
Date of creation: Jun 2001
Date of revision:
Random expenditure function; Compensated choice probabilities; Compensating variation.;
Find related papers by JEL classification:
- C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions
- D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
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