The Nonparametric Approach to Applied Welfare Analysis
17 Pages Posted: 27 Apr 2005
Date Written: April 2005
Changes in total surplus and deadweight loss are traditional measures of economic welfare. We propose necessary and sufficient conditions for rationalizing consumer demand data with a quasilinear utility function. Under these conditions, consumer surplus is a valid measure of consumer welfare. For nonmarketed goods, we propose necessary and sufficient conditions on market data for efficient production, i.e. production at minimum cost. Under these conditions we derive a cost function for the nonmarketed good, where producer surplus is the area above the marginal costs curve.
Keywords: Welfare economics, Quasilinear utilities, Non marketed goods, Afriat inequalities
JEL Classification: D11, D12, D21, D60
Suggested Citation: Suggested Citation