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The Three Consumer Surpluses as Individual Welfare Measures

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Publication details

JournalScottish Journal of Political Economy
DatePublished - 1987
Issue number3
Volume34
Pages (from-to)230-48
Original languageUndefined/Unknown

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.

    Research areas

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

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