Abstract
In practice, complete demand systems are not estimated. Rather, either an incomplete demand system is estimated, or separability is invoked and a partial demand system is estimated. This paper considers the relationship between the conventional compensating variation (equivalent variation) and the corresponding welfare measure that can be derived from a partial demand system and the current budget allocation to the separable group. Even assuming the separability assumption invoked is appropriate, these partial measures provide, in general, only a limited amount of information about the compensating variation and no information about the equivalent variation. Great care is therefore needed when using partial welfare measures to evaluate policy.
Original language | English (US) |
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Pages (from-to) | 241-258 |
Number of pages | 18 |
Journal | Journal of Environmental Economics and Management |
Volume | 22 |
Issue number | 3 |
DOIs | |
State | Published - May 1992 |
Externally published | Yes |
ASJC Scopus subject areas
- Economics and Econometrics
- Management, Monitoring, Policy and Law