Separability, partial demand systems, and consumer's surplus measures |
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Authors: | Michael Hanemann Edward Morey |
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Abstract: | In practice, complete demand systems are not estimated. Rather, either an incomplete demand system is estimated, or separability is invoked and a partial demand system is estimated. This paper considers the relationship between the conventional compensating variation (equivalent variation) and the corresponding welfare measure that can be derived from a partial demand system and the current budget allocation to the separable group. Even assuming the separability assumption invoked is appropriate, these partial measures provide, in general, only a limited amount of information about the compensating variation and no information about the equivalent variation. Great care is therefore needed when using partial welfare measures to evaluate policy. |
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