Seminar Papers, Institute for International Economic Studies, Stockholm University
Consumer's Welfare and Change in Stochastic Partial-Equilibrium Price
Abstract: First, I show that the expected consumer's surplus is
equivalent to ex ante compensating variation if and only if the consumer is
risk neutral, and the consumer's income elasticity of demand for the
commodity is zero. Moreover, the conditions are equivalent to the von
Neuman - Morgenstern utility function being quasi-linear. Second, I show
that the expected consumer's surplus is an approximation for the consumer's
welfare, measured by expected utility, also if the expenditure share is
small. Third, I propose a formula to evaluate approximately the consumer's
welfare, measured both by expected utility and by ex ante compensating
variation, when the above conditions are not met.
Keywords: expected consumer's surplus; consumer's welfare; ex ante compensating variation; (follow links to similar papers)
JEL-Codes: D11; (follow links to similar papers)
27 pages, October 30, 1997
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