The Nonparametric Approach to Applied Welfare Analysis

17 Pages Posted: 27 Apr 2005

See all articles by Donald Brown

Donald Brown

Yale University - Cowles Foundation

Caterina Calsamiglia

Yale University - Department of Economics

Date Written: April 2005

Abstract

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

Brown, Donald J. and Calsamiglia, Caterina, The Nonparametric Approach to Applied Welfare Analysis (April 2005). Available at SSRN: https://ssrn.com/abstract=711927

Donald J. Brown (Contact Author)

Yale University - Cowles Foundation ( email )

Box 208281
New Haven, CT 06520-8281
United States

Caterina Calsamiglia

Yale University - Department of Economics ( email )

28 Hillhouse Ave
New Haven, CT 06520-8268
United States

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