Compensating the compensating variation
Guerra, Ana Isabel
Sancho, Ferran

Imprint: Universitat Autònoma de Barcelona. Unitat de Fonaments de l'Anàlisi Econòmica 2017
Description: 4 p.
Abstract: The message of this note is that in a general equilibrium setting the compensating variation is numéraire dependent. In contrast, the equivalent variation is neutral regarding the choice of value units. We illustrate with a simple example and propose an even simpler solution to overcome this bias in the compensating variation; all that is required to have a correct welfare estimate is to compensate the compensating variation by normalization with a price index. This type of correction is necessary to overcome the often blind implementation of welfare measures in numerical general equilibrium.
Rights: L'accés als continguts d'aquest document queda condicionat a l'acceptació de les condicions d'ús establertes per la següent llicència Creative Commons: Creative Commons
Language: Anglès.
Series: Departament d'Economia i d'Història Econòmica: Unitat de Fonaments de l'Anàlisi Econòmica / Institut d'Anàlisi Econòmica (CSIC): Working papers
Series: Working papers ; 961.17
Document: workingPaper
Subject: Compensating variation ; Equivalent variation ; Konüs index ; Computable general equilibrium ; Microeconomia

Adreça alternativa: https://hdl.handle.net/2072/291515


4 p, 330.6 KB

The record appears in these collections:
Research literature > Working papers

 Record created 2018-10-23, last modified 2018-12-22



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