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Translation homotheticity

Listed author(s):
  • Robert G. Chambers

    (Department of Agricultural and Resource Economics, 2200 Symons Hall, University of Maryland, College Park, MD 20742-5535, USA)

  • Rolf Färe

    (Department of Economics, Southern Illinois University, Carbondale, IL 62901-4515, USA)

The concept of translation homotheticity is introduced and defined. It is demonstrated that translation homotheticity is necessary and sufficient for: disposable surplus to be independent of the reference utility, Luenberger's compensating and equivalent benefits to be independent of the reference utility and always equal to one another, the risk premium to be independent of reference-level utility, absolute indexes of income inequality to be reference free, and social-welfare functionals to satisfy invariance with respect to the choice of a common origin. Translation homotheticity is also sufficient for Hicks' many-market consumer surplus measure to be a second-order approximation to disposable surplus, compensating benefit, and equivalent benefit. If preferences are translation homothetic and appropriately quadratic, Hicks, many-market consumer surplus measure is exact for these welfare measures.

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Article provided by Springer & Society for the Advancement of Economic Theory (SAET) in its journal Economic Theory.

Volume (Year): 11 (1998)
Issue (Month): 3 ()
Pages: 629-641

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Handle: RePEc:spr:joecth:v:11:y:1998:i:3:p:629-641
Note: Received: October 24, 1996; revised version: March 3, 1997
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