Surplus Maximization and Optimality

Edward Schlee

American Economic Review, 2013, vol. 103, issue 6, 2585-2611

Abstract: Expected consumer's surplus rarely represents preferences over price lotteries. Still, I give sufficient conditions for policies which maximize aggregate expected surplus to be interim Pareto Optimal. Besides two standard partial equilibrium conditions, I assume that feasible prices satisfy a single-crossing property; and each consumer's indirect utility satisfies increasing differences in the price and income. I use the result to extend well-known welfare conclusions beyond the knife-edge quasilinear utility case. Since increasing differences puts no upper bound on risk aversion, the result is useful for applications in which risk aversion is important.

JEL-codes: D11 D24 D42 D81 D83 L42 (search for similar items in EconPapers)
Date: 2013
Note: DOI: 10.1257/aer.103.6.2585
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Citations: View citations in EconPapers (5)

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