A Mark Twainian View Of Consumer Surplus

George W. Ladd

ISU General Staff Papers from Iowa State University, Department of Economics

Abstract: Many economists have used CS or producer surplus (PS) to evaluate consequences of public policies. Although some economists question CS and PS formulations, the proponents of their use have carried the day. Almost every journal issue carries articles in which they are used. No one hears from'the opponents any more—except-for an occasional furtive whisper, "I don't believe it". For a refreshing exception, see Cochrane (1980). Cochrane*s objections to use of CS are mostly practical ones: that use of CS in public policy analysis is an effort to provide a scalar answer to a question that does not have a scalar answer, and that measures of CS do not provide public-policy makers information that they can use in choosing and defending policies. This paper coiiq>lement8 Cochrane*s practical objections by presenting theoretical objections. The main thesis of this paper is that it is a good thing if Cochrane is right in asserting that CS is not used in making public policy, because the concept of CS is seriously flawed and our measures of CS are biased measures of a flawed concept.

Date: 1981-01-01
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