The Importance Of Functional Form In The Estimation Of Welfare
Researchers have recognized the central role that the choice of functional form has on estimated of consumer surplus. The purpose of this paper is to quantify the magnitude of errors which might arise from the use of incorrect functional forms. It describes a simulation experiment where estimated consumer surplus, based on simulated data sets, is compared with consumer surplus computed directly from the simulate data. The errors resulting from the use of mismatching functional forms range from approximately 4% to 107%.
Volume (Year): 14 (1989)
Issue (Month): 01 (July)
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- Morey, Edward R, 1984. "The Choice of Ski Areas: Estimation of a Generalized CES Preference Ordering with Characteristics," The Review of Economics and Statistics, MIT Press, vol. 66(4), pages 584-90, November.
- Kling, Catherine L., 1988.
"Comparing welfare estimates of environmental quality changes from recreation demand models,"
Journal of Environmental Economics and Management,
Elsevier, vol. 15(3), pages 331-340, September.
- Kling, Catherine L., 1988. "Comparing Welfare Estimates of Environmental Quality Changes from Recreation Demand Models," Staff General Research Papers 1584, Iowa State University, Department of Economics.
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