COMPENSATING VARIATION WITHOUT APOLOGY? WILLINGNESS-TO-PAY AND THE FAILURE OF INTEGRABILITY

Richard Just and Daniel Gilligan ()

No 20814, 1998 Annual meeting, August 2-5, Salt Lake City, UT from American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association)

Abstract: Failure of integrability is shown to cause path-dependence of willingness-to-pay measures of welfare change. Using the linear expenditure system, effects of failure of integrability are negligible (substantial) for estimating income (price) elasticities. For single price changes, Hausman's approach to calculating willingness to pay from ordinary demands becomes subject to excessive errors of estimation. For multiple price changes, calculations of willingness to pay become path dependent. The empirical approach of Vartia to calculation of willingness to pay for multiple price changes thus involves an arbitrary choice of path. Furthermore, the Willig results justifying consumer surplus approximation fail.

Keywords: Consumer/Household Economics; Demand and Price Analysis (search for similar items in EconPapers)
Pages: 14
Date: 1998
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:ags:aaea98:20814

DOI: 10.22004/ag.econ.20814

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