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Measuring Consumer Surplus with Unknown Hicksian Demands

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  • Irvine, I.J.
  • Sims, W.A.

Abstract

The objective of this paper to introduce the Slutsky demand curve as a tool in welfare analysis. It is shown that the compensating or equivalent variation can in most cases be measured to within a fraction of a percent of their true value without any numerical integration techniques. Two well known examples in the literature are explored. A theoretical measure of the accuracy of the Slutsky based measure, relative to the Marshallian measure, is developed. The approach is locally path independent and can be used to measure the money value of a ration. Finally it application to models of labour supply is explored an an error in the literature is corrected.

Suggested Citation

  • Irvine, I.J. & Sims, W.A., 1995. "Measuring Consumer Surplus with Unknown Hicksian Demands," Working Papers 219, University of Sydney, School of Economics.
  • Handle: RePEc:syd:wpaper:2123/7467
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    Cited by:

    1. Koji Miyawaki & Yasuhiro Omori, 2007. "Duality-Based Analysis of Residential Gas Demand under Decreasing Block Rate Pricing," CIRJE F-Series CIRJE-F-506, CIRJE, Faculty of Economics, University of Tokyo.
    2. Steven Sheffrin & Tracy Turner, 2001. "Taxation and House-Price Uncertainty: Some Empirical Estimates," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 8(4), pages 621-636, August.
    3. Bockstael, Nancy E. & Freeman III, A. Myrick, 2006. "Welfare Theory and Valuation," Handbook of Environmental Economics,in: K. G. Mäler & J. R. Vincent (ed.), Handbook of Environmental Economics, edition 1, volume 2, chapter 12, pages 517-570 Elsevier.
    4. C. Woo & J. Zarnikau & E. Kollman, 2012. "Exact welfare measurement for double-log demand with partial adjustment," Empirical Economics, Springer, vol. 42(1), pages 171-180, February.
    5. 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.
    6. Miroslav Svoboda, 2008. "History and troubles of consumer surplus," Prague Economic Papers, University of Economics, Prague, vol. 2008(3), pages 230-242.

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