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Spurious Deadweight Gains

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Author Info

  • Giovanni Facchini
  • Peter J. Hammond
  • Hiroyuki Nakata

Abstract

July 2000 Marshallian consumer surplus (MCS) is generally an inaccurate measure of welfare change because it neglects income effects. Suppose these effects overturn the usual demand response to a price change. Then, the deadweight loss from a distortionary tax or subsidy has the wrong sign, that is, there is a spurious deadweight gain. JEL Classification: D11, D6. Keywords: Marshallian consumer surplus, Giffen goods, Stability of equilibrium

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Bibliographic Info

Paper provided by Stanford University, Department of Economics in its series Working Papers with number 00014.

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Date of creation: Jul 2000
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Handle: RePEc:wop:stanec:00014

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Keywords: Marshallian consumer surplus; Giffen goods; Stability of equilibrium;

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  1. Willig, Robert D, 1976. "Consumer's Surplus without Apology," American Economic Review, American Economic Association, vol. 66(4), pages 589-97, September.
  2. Hausman, Jerry A, 1981. "Exact Consumer's Surplus and Deadweight Loss," American Economic Review, American Economic Association, vol. 71(4), pages 662-76, September.
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Cited by:
  1. Robledo, Julio R. & Wagener, Andreas, 2007. "No spurious welfare gains from taxation: A further argument for the equivalent variation," Economics Letters, Elsevier, vol. 96(3), pages 325-330, September.

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