Measuring Welfare Changes With Nonlinear Budget Constraints in Continuous and Discrete Hours Labour Supply Models

John Creedy and Guyonne Kalb

No 799, Department of Economics - Working Papers Series from The University of Melbourne

Abstract: This paper examines the computation of exact welfare measures in the context of labour supply models. It is suggested that the standard method of computing compensating and equivalent variations does not allow sufficiently for the nonlinearity of the budget constraint. An exact method is suggested. The method is applied to contexts in which individuals are allowed to vary their hours continuously and where only a limited number of discrete hours of work are available. Discrete hours models have in recent years been used in view of the substantial econometric advantages when estimating the parameters of direct utility functions.

Keywords: LABOUR; BUDGET; UTILITY FUNCTIONS (search for similar items in EconPapers)
JEL-codes: H61 J21 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2001
Note: This paper has now been published in: Creedy, J. and Kalb G. (2005) Measuring Welfare Changes in Labour Supply Models, Manchester School, 73, no.6, pp. 664-685.
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Working Paper: Measuring Welfare Changes With Nonlinear Budget Constraints in Continuous and Discrete Hours Labour Supply Models (2001)
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