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Spurious Deadweight Gains

Author

Listed:
  • Giovanni Facchini
  • Peter J. Hammond
  • Hiroyuki Nakata

Abstract

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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    File URL: http://www-econ.stanford.edu/faculty/workp/swp00014.pdf
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    References listed on IDEAS

    as
    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.

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    More about this item

    Keywords

    Marshallian consumer surplus; Giffen goods; Stability of equilibrium;
    All these keywords.

    JEL classification:

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

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