Multi-Dimensional Pass-Through and Welfare Measures under Imperfect Competition

Abstract

This paper provides a comprehensive analysis of welfare effects under multiple policy interventions and non-governmental external changes. Specifically, in relation to multi-dimensional pass-through, we provide “sufficient statistics” formulas for welfare measures under a fairly general class of demand, production cost, and market competition. These welfare measures are (i) the marginal change in deadweight loss per government revenue, and (ii) incidence (i.e., the ratio of a marginal change in consumer surplus to a marginal change in producer surplus). We begin with a two-dimensional taxation regime in which symmetric firms face both unit and ad valorem taxes, and derive a simple and empirically relevant set of the formulas. Then, a substantial generalization is presented using the idea of tax revenue specified as a general function parameterized by a vector of tax parameters. We also emphasize that our methodology readily carries over to the case of heterogeneous firms.

Keywords: Oligopoly; Pass-through; Multi-dimensional interventions; Deadweight loss; Incidence; Sufficient Statistics

JEL Classification: D43, H22, L13