The Three Consumer Surpluses as Individual Welfare Measures

John L Wriglesworth and Hugh Gravelle

Scottish Journal of Political Economy, 1987, vol. 34, issue 3, 230-48

Abstract: This paper shows the extremely strong restrictions on individual preferences and social-value judgments that are necessary for the three conventional surplus concepts (equiv alent variation, compensating variation, and Marshallian surplus) to be measures of an individual's welfare change. If the surpluses are t o be cardinal welfare measures then individual preferences must be ei ther homothetic (CV, MS) or quasi-homothetic (EV), the welfare functi on must be nonpaternal and embody very different value judgments for the three measures. The elasticity of the marginal welfare of money w ith respect to income must be O for EV, 1 for MS, and 2 for CV. Copyright 1987 by Scottish Economic Society.

Date: 1987
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