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A Simple and Efficient Method for Estimating the Magnitude and Precision of Welfare Changes


  • Breslaw, Jon A
  • Smith, J Barry


In this article we propose a simple and efficient method of estimating welfare measures in an n-equation system. We also estimate the variance of these measures. The accuracy and convergence properties of our approach are studied: the algorithm converges quadratically. This is a distinct improvement over the Vartia algorithm which converges linearly. We demonstrate the method by evaluating the welfare consequences of price changes in the provision of health care. The GAUSS code, which is very short, is included. Copyright 1995 by John Wiley & Sons, Ltd.

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  • Breslaw, Jon A & Smith, J Barry, 1995. "A Simple and Efficient Method for Estimating the Magnitude and Precision of Welfare Changes," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 10(3), pages 313-327, July-Sept.
  • Handle: RePEc:jae:japmet:v:10:y:1995:i:3:p:313-27

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    References listed on IDEAS

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    Cited by:

    1. Abdelkrim Araar & Paolo Verme, 2016. "Prices and welfare," Working Papers 395, ECINEQ, Society for the Study of Economic Inequality.
    2. James R. Hines, 1999. "Three Sides of Harberger Triangles," Journal of Economic Perspectives, American Economic Association, vol. 13(2), pages 167-188, Spring.
    3. Pascal Lavergne & Vincent Réquilllart & Michel Simioni, 1998. "Pertes de bien-être et pouvoir de marché dans l'agro-alimentaire français," Économie et Prévision, Programme National Persée, vol. 135(4), pages 77-86.
    4. Bullock, David S. & Garcia, Philip & Shin, Kie-Yup, 2005. "Measuring producer welfare under output price uncertainty and risk non-neutrality," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 49(1), March.
    5. Ian J. Irvine & William A. Sims, 2002. "A simple and efficient method for estimating the magnitude and precision of welfare changes: comment," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 17(1), pages 81-83.
    6. Rubin de Celis, Raúl & Espinoza Vásquez, Lourdes, 2015. "Aplicación del algoritmo de Vartia: el sector de educación primaria en Bolivia," Revista Latinoamericana de Desarrollo Economico, Instituto de Investigaciones Socio-Económicas (IISEC), Universidad Católica Boliviana, issue 23, pages 97-128, Mayo.
    7. Michael Ahlheim & Ulrike Lehr, 2002. "Nutzentransfer: Das Sparmodell der Umweltbewertung," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 3(1), pages 85-104, February.
    8. Ahlheim, Michael, 1998. "Contingent valuation and the budget constraint," Ecological Economics, Elsevier, vol. 27(2), pages 205-211, November.
    9. Kumar, Anil, 2008. "Labor supply, deadweight loss and tax reform act of 1986: A nonparametric evaluation using panel data," Journal of Public Economics, Elsevier, vol. 92(1-2), pages 236-253, February.
    10. Zhen Sun & Yang Xie, 2013. "Error Analysis and Comparison of Two Algorithms Measuring Compensated Income," Computational Economics, Springer;Society for Computational Economics, vol. 42(4), pages 433-452, December.

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