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The Nonparametric Approach to Applied Welfare Analysis

  • Donald J. Brown
  • Caterina Calsamiglia
Part of the Lecture Notes in Economics and Mathematical Systems book series (LNE, volume 604)

Abstract

Changes in total surplus are traditional measures of economic welfare. We propose necessary and sufficient conditions for rationalizing individual and aggregate consumer demand data with individual quasilinear and homothetic utility functions. Under these conditions, consumer surplus is a valid measure of consumer welfare. For nonmarketed goods, we propose necessary and sufficient conditions on input 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 cost curve.

Key words

Welfare economics Quasilinear utilities Homothetic utilities Nonmarketed goods Afriat inequalities 

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Copyright information

© Springer-Verlag Berlin Heidelberg 2008

Authors and Affiliations

  • Donald J. Brown
    • 1
  • Caterina Calsamiglia
    • 2
  1. 1.Yale UniversityNew Haven
  2. 2.Universitat Autònoma de BarcelonaBellaterra, BarcelonaSpain

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