Spurious Deadweight Gains

Giovanni Facchini, Peter Hammond and Hiroyuki Nakata

Working Papers from Stanford University, Department of Economics

Abstract: July 2000

Marshallian consumer surplus (MCS) is generally an inaccurate measure of welfare change because it neglects income effects. Suppose these effects overturn the usual demand response to a price change. Then, the deadweight loss from a distortionary tax or subsidy has the wrong sign, that is, there is a spurious deadweight gain.

JEL Classification: D11, D6. Keywords: Marshallian consumer surplus, Giffen goods, Stability of equilibrium

Keywords: Marshallian consumer surplus; Giffen goods; Stability of equilibrium (search for similar items in EconPapers)
JEL-codes: D11 D6 (search for similar items in EconPapers)
Date: 2000-07
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Journal Article: Spurious deadweight gains (2001)
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