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Quasilinearity and Its Discontents: Public-Good Regulation with Consumer Risk Aversion and Income Effects

Author

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  • Edward E. Schlee

Abstract

In the partial-equilibrium literature on regulation, the usual measure of social welfare is a weighted average of expected profit and expected consumers' surplus. It is justified if two strong quasilinearity assumptions hold on each consumer's von Neumann–Morgenstern utility: income-risk neutrality and no income effects, assumptions that rule out matters of first-order importance for regulation under uncertainty. I review and extend known results on how risk aversion and income effects change Weitzman’s classic result on prices versus quantities. And I present preliminary results on an optimal regulatory policy for risk-averse consumers, unconstrained to just prices or quantities.

Suggested Citation

  • Edward E. Schlee, 2026. "Quasilinearity and Its Discontents: Public-Good Regulation with Consumer Risk Aversion and Income Effects," AEA Papers and Proceedings, American Economic Association, vol. 116, pages 532-537, May.
    • Handle: RePEc:aea:apandp:v:116:y:2026:p:532-537
    DOI: 10.1257/pandp.20261065
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    More about this item

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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