Exact welfare measurement for double-log demand with partial adjustment

Chi-Keung WOO, J. Zarnikau*, E. Kollman

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

7 Citations (Scopus)

Abstract

This paper demonstrates that a double-log demand with partial adjustment (DLPA) is consistent with the theory of consumer utility maximization. It offers an approach for calculating the compensating variation (CV), the exact welfare effect of a change in a price series when a DLPA is employed. Significant bias may result if the CV is based on a static double-log demand when a DLPA function is appropriate. We revisit a recent study of demand for gasoline in the U. S., finding that the CV based on the static double-log would overstate the welfare effect of a 6-month temporary gasoline tax by 7.5%.

Original languageEnglish
Pages (from-to)171-180
Number of pages10
JournalEmpirical Economics
Volume42
Issue number1
DOIs
Publication statusPublished - Feb 2012

Scopus Subject Areas

  • Statistics and Probability
  • Mathematics (miscellaneous)
  • Social Sciences (miscellaneous)
  • Economics and Econometrics

User-Defined Keywords

  • Compensating variation
  • Consumer surplus
  • Double-log demand
  • Welfare measures

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