The Three Consumer Surpluses as Individual Welfare Measures

John L. Wriglesworth; Hugh S. E. Gravelle

The Three Consumer Surpluses as Individual Welfare Measures

John L. Wriglesworth, Hugh S. E. Gravelle

Centre for Health Economics

Research output: Contribution to journal › Article › peer-review

Abstract

This paper shows the extremely strong restrictions on individual preferences and social-value judgments that are necessary for the three conventional surplus concepts (equivalent variation, compensating variation, and Marshallian surplus) to be measures of an individual's welfare change. If the surpluses are to be cardinal welfare measures then individual preferences must be either homothetic (CV, MS) or quasi-homothetic (EV), the welfare function must be nonpaternal and embody very different value judgments for the three measures. The elasticity of the marginal welfare of money with respect to income must be O for EV, 1 for MS, and 2 for CV.

Original language	Undefined/Unknown
Pages (from-to)	230-48
Journal	Scottish Journal of Political Economy
Volume	34
Issue number	3
Publication status	Published - 1987

Keywords

Welfare Theory--General (0240) Microeconomic Theory--General (0220)

Cite this

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AB - This paper shows the extremely strong restrictions on individual preferences and social-value judgments that are necessary for the three conventional surplus concepts (equivalent variation, compensating variation, and Marshallian surplus) to be measures of an individual's welfare change. If the surpluses are to be cardinal welfare measures then individual preferences must be either homothetic (CV, MS) or quasi-homothetic (EV), the welfare function must be nonpaternal and embody very different value judgments for the three measures. The elasticity of the marginal welfare of money with respect to income must be O for EV, 1 for MS, and 2 for CV.

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