Income Evaluation of Welfare Change: Equivalent Variation, Compensating Variation, and Consumer Surplus

2017 ◽  
pp. 37-69
Author(s):  
Takashi Hayashi
Keyword(s):  
Consumer Surplus ◽  
Compensating Variation ◽  
Equivalent Variation ◽  
Welfare Change

scholarly journals Hicksian Welfare Measures and the Normative Endowment Effect

2010 ◽  
Vol 2 (4) ◽  
pp. 171-194 ◽  
Author(s):  
Thomas A Weber
Keyword(s):  
Utility Function ◽  
Sufficient Conditions ◽  
Endowment Effect ◽  
Indirect Utility ◽  
Compensating Variation ◽  
Equivalent Variation ◽  
Indirect Utility Function ◽  
Welfare Measures ◽  
Empirical Implications ◽  
Hicksian Welfare

We show that the Hicksian welfare measures of compensating variation and equivalent variation coincide if one of them is evaluated at a compensated income. The measures are nondecreasing in income if the varied attribute and income are complementary, and indirect utility is concave in income. Income monotonicity implies the normative endowment effect, where the equivalent variation exceeds the compensating variation. We provide sufficient conditions for the normative endowment effect and discuss empirical implications. In the global absence of a strict (anti-) endowment effect, both Hicksian welfare measures must be independent of income and the indirect utility function additively separable in income. (JEL D11, D63)

scholarly journals Measuring the welfare cost of inflation in south africa: a reconsideration

2011 ◽  
Vol 12 (2) ◽  
pp. 137-146
Author(s):  
Rangan Gupta ◽  
Josine Uwilingiye
Keyword(s):  
South Africa ◽  
Consumer Surplus ◽  
Welfare Cost ◽  
Compensating Variation ◽  
Data Set ◽  
Cost Estimates ◽  
Welfare Cost Of Inflation ◽  
Long Run ◽  
Equilibrium Relationship ◽  
Long Run Equilibrium

In this paper, using the Fisher and Seater (1993) long-horizon approach, the writers estimate the long-run equilibrium relationship between money balance as a ratio of income and the Treasury bill rate for South Africa over the period 1965:02 to 2007:01, and, in turn, use the obtained estimates of the interest elasticity and the semi-elasticity to derive the welfare cost estimates of inflation, using both Bailey’s (1956) consumer surplus approach and Lucas’ (2000) compensating variation approach. When the results are compared to welfare cost estimates obtained recently by Gupta and Uwilingiye (2008), using the same data set, but basing it on Johansen’s (1991, 1995) cointegration technique, the values are less than half of those obtained in the latter study. These range from 0.16 percent to 0.36 percent of GDP for the target-band of three percent to six percent of inflation. The paper thus highlights the fact that welfare cost estimates of inflation are sensitive to the methodology used to estimate the long-run equilibrium money demand relationships.

Some Issues in Benefit-Cost Analysis for Airport Development

1997 ◽  
Vol 1567 (1) ◽  
pp. 1-7 ◽  
Author(s):  
Jeffrey P. Cohen
Keyword(s):  
Social Welfare ◽  
Federal Aviation Administration ◽  
Variation Method ◽  
Policy Decisions ◽  
National Airspace System ◽  
Compensating Variation ◽  
Cost Analyses ◽  
Equivalent Variation ◽  
Benefit Cost Analysis ◽  
Benefit Cost

A number of recent Executive Office mandates have outlined the need for U.S. government agencies, including the Federal Aviation Administration, to conduct benefit-cost analyses for policy decisions. Policy decisions concerning local airspace system infrastructure could result in national airspace benefits. If the benefit-cost analyses are to be conducted properly, there is a need to account for these benefits. A method for conducting simulations is developed within a benefit-cost framework to examine the social welfare implications when localities act unilaterally without internalizing potential national airspace system benefits. Rates of return, compensating variation, and equivalent variation are simulated for a hypothetical economy, and social welfare as measured by these techniques improves when localities account for national airspace system benefits. The equivalent variation method enables policy makers to distinguish some equity implications from efficiency improvements that may occur simultaneously when localities move to account for national airspace system benefits in their aviation infrastructure decisions. Other issues in conducting benefit cost analyses for aviation infrastructure projects are discussed, and suggestions concerning how to attain efficient outcomes in compliance with institutional guidelines are made.

scholarly journals Measuring Welfare Effects of an FMD Outbreak in the United States

2003 ◽  
Vol 35 (1) ◽  
pp. 53-65 ◽  
Author(s):  
Philip L. Paarlberg ◽  
John G. Lee ◽  
Ann H. Seitzinger
Keyword(s):  
United States ◽  
Consumer Surplus ◽  
Foot And Mouth Disease ◽  
The United States ◽  
Welfare Effects ◽  
Economic Costs ◽  
Sales Revenue ◽  
Welfare Change ◽  
Producer Surplus ◽  
Welfare Changes

Questions have been raised regarding the economic costs of a foot-and-mouth disease (FMD) outbreak in the United States. This analysis examines how welfare changes are measured and argues that they must be decomposed by groups. Producers with animals quarantined and slaughtered because of FMD measure their welfare change using lost sales. Producers not quarantined measure their welfare change using producer surplus. The change in national sales revenue is accurate when the supply elasticity is low. Welfare changes for consumers also must be decomposed because the change in aggregate consumer surplus hides important shifts in welfare among groups of consumers.

scholarly journals Dampak Perubahan Harga Pangan terhadap Tingkat Kesejahteraan Rumah Tangga di Indonesia

2019 ◽  
Vol 37 (1) ◽  
pp. 25
Author(s):  
Rita Yuliana ◽  
NFN Harianto ◽  
Sri Hartoyo ◽  
Muhammad Firdaus
Keyword(s):  
Linear Approximation ◽  
Urban Areas ◽  
Rural Poverty ◽  
Food Prices ◽  
Demand System ◽  
Household Welfare ◽  
Almost Ideal Demand System ◽  
Compensating Variation ◽  
Welfare Change ◽  
Agricultural Households

<strong>English</strong><br />The most important people's welfare related food problem is increasing food prices. Food price induced welfare change varies by household groups, either by location (urban/rural), poverty status (poor/non-poor), and souces of incomes (agriculture/non-agricultural). The sources of the welfare change may also vary by food categories. This study aims to evaluate changes in household welfare in Indonesia by household groups and the contribution of food categories. The household welfare was measured with the Compensating Variation which was computed by using the Hicksian compensated price elasticities obtained from the estimated Linear Approximation Almost Ideal Demand System using the National Socio-Economic Survey March 2016 data. The results showed that in March 2016, welfare losses in all household groups, in urban areas higher than in rural areas, in poorer households higher than non-poor, in agricultural households higher than non-agricultural and the contribution of each food group to the decline in welfare levels varies among individual household groups. The largest contributor is food prices. Rice is the largest contributor for the rural, the poor and the agricultural households. Animal products, fruit, prepared food and beverage and cigarettes categories are the main contributors for the urban, the not poor and the non-agricultural households.<br /><br /><br /><strong>Indonesian</strong><br />Permasalahan pangan utama yang berkaitan dengan tingkat kesejahteraan masyarakat adalah kenaikan harga pangan. Perubahan tingkat kesejahteraan akibat kenaikan harga pangan berbeda menurut kelompok seperti menurut tempat tinggal (perkotaan/perdesaan), status kemiskinan (miskin/tidak miskin), sumber utama penghasilan rumah tangga (pertanian/nonpertanian). Demikian pula kontribusi masing-masing kategori pangan terhadap perubahan tingkat kesejahteraan berbeda pada kelompok rumah tangga sama. Penelitian ini bertujuan untuk mengevaluasi perubahan tingkat kesejahteraan rumah tangga di Indonesia menurut kelompok rumah tangga dan kontribusi kategori pangan terhadap perubahan tingkat kesejahteraan tersebut. Perubahan kesejahteraan diukur dengan <em>Compensating Variation</em> berdasarkan<em> </em>elastisitas harga terkompensasi Hicksian yang diperoleh dari model permintaan <em>Linear Approximation Almost Ideal Demand System</em> dengan data Survei Sosial Ekonomi Nasional periode Maret 2016. Hasil penelitian menunjukkan bahwa pada Maret 2016, terjadi penurunan kesejahteraan pada semua kelompok rumah tangga, di perkotaan lebih tinggi daripada di perdesaan, pada rumah tangga miskin lebih tinggi dari pada tidak miskin, pada rumah tangga pertanian lebih tinggi dari pada nonpertanian. Kelompok makanan berkontribusi tertinggi terhadap penurunan tingkat kesejahteraan rumah tangga secara umum. Beras berkontribusi tertinggi dalam penurunan tingkat kesejahteraan kelompok rumah tangga perdesaan, miskin, dan pertanian. Kategori pangan hewani, kelompok buah-buahan, makanan dan minuman jadi serta rokok berkontribusi tertinggi untuk kelompok rumah tangga di perkotaan, tidak miskin dan nonpertanian.

scholarly journals Contingent Valuation And Recreational Demand

2011 ◽  
Vol 7 (3) ◽  
pp. 116
Author(s):  
Scott N. Ralston ◽  
William M. Park ◽  
Edward J. Frampton
Keyword(s):  
Willingness To Pay ◽  
Contingent Valuation ◽  
Consumer Surplus ◽  
Compensating Variation ◽  
Valuation Model ◽  
Recreational Demand

A contingent valuation model is developed to estimate the value of the recreational experience for visitors to Reelfoot Lake in northwestern Tennessee. Hicksian compensating variation measures of consumer surplus were estimated. Individual willingness-to-pay and aggregate willingness-to-pay were calculated for the lake.

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