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Spurious Deadweight Gains


  • Giovanni Facchini
  • Peter J. Hammond
  • Hiroyuki Nakata


July 2000 Marshallian consumer surplus (MCS) is generally an inaccurate measure of welfare change because it neglects income effects. Suppose these effects overturn the usual demand response to a price change. Then, the deadweight loss from a distortionary tax or subsidy has the wrong sign, that is, there is a spurious deadweight gain. JEL Classification: D11, D6. Keywords: Marshallian consumer surplus, Giffen goods, Stability of equilibrium

Suggested Citation

  • Giovanni Facchini & Peter J. Hammond & Hiroyuki Nakata, 2000. "Spurious Deadweight Gains," Working Papers 00014, Stanford University, Department of Economics.
  • Handle: RePEc:wop:stanec:00014

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    References listed on IDEAS

    1. Willig, Robert D, 1976. "Consumer's Surplus without Apology," American Economic Review, American Economic Association, vol. 66(4), pages 589-597, September.
    2. Hausman, Jerry A, 1981. "Exact Consumer's Surplus and Deadweight Loss," American Economic Review, American Economic Association, vol. 71(4), pages 662-676, September.
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    Cited by:

    1. Robledo, Julio R. & Wagener, Andreas, 2007. "No spurious welfare gains from taxation: A further argument for the equivalent variation," Economics Letters, Elsevier, vol. 96(3), pages 325-330, September.

    More about this item


    Marshallian consumer surplus; Giffen goods; Stability of equilibrium;

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D6 - Microeconomics - - Welfare Economics

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