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When producer surplus underestimates rents

  • Gregg Frasco
  • Chulho Jung
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    This paper demonstrates for the long run that producer surplus exactly equals the sum of rents paid to competitively purchased inputs and fails to account for rents paid to monopsonized inputs. Therefore, in the long run, whenever one or more inputs are subject to monopsony buying power, producer surplus underestimates rents. Because the concept of producer surplus is often used to help compare the welfare effects of alternative economic policies, the result is significant. Copyright International Atlantic Economic Society 2001

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    File URL: http://hdl.handle.net/10.1007/BF02299329
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    Article provided by International Atlantic Economic Society in its journal Atlantic Economic Journal.

    Volume (Year): 29 (2001)
    Issue (Month): 4 (December)
    Pages: 393-405

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    Handle: RePEc:kap:atlecj:v:29:y:2001:i:4:p:393-405
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    1. McCulloch, Rachel & Yellen, Janet L., 1980. "Factor market monopsony and the allocation of resources," Journal of International Economics, Elsevier, vol. 10(2), pages 237-247, May.
    2. Hazilla, Michael & Kopp, Raymond J, 1990. "Social Cost of Environmental Quality Regulations: A General Equilibrium Analysis," Journal of Political Economy, University of Chicago Press, vol. 98(4), pages 853-73, August.
    3. Kalt, Joseph P., 1989. "Exhaustible resource price policy, international trade, and intertemporal welfare," Journal of Environmental Economics and Management, Elsevier, vol. 17(2), pages 109-126, September.
    4. Roy Boyd & Kerry Krutilla, 1992. "Controlling acid deposition: A general equilibrium assessment," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 2(3), pages 307-322, May.
    5. William M. Boal & Michael R. Ransom, 1997. "Monopsony in the Labor Market," Journal of Economic Literature, American Economic Association, vol. 35(1), pages 86-112, March.
    6. Posner, Richard A, 1975. "The Social Costs of Monopoly and Regulation," Journal of Political Economy, University of Chicago Press, vol. 83(4), pages 807-27, August.
    7. Wessels, Walter John, 1997. "Minimum Wages and Tipped Servers," Economic Inquiry, Western Economic Association International, vol. 35(2), pages 334-49, April.
    8. Martin, Will & Alston, Julian M, 1997. "Producer Surplus without Apology? Evaluating Investments in R&D," The Economic Record, The Economic Society of Australia, vol. 73(221), pages 146-58, June.
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