Exact welfare measurement for double-log demand with partial adjustment

Chi Keung WOO, J. ZARNIKAU, E. KOLLMAN

Research output: Contribution to journalArticles

5 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%. Copyright © 2010 Springer-Verlag.
Original languageEnglish
Pages (from-to)171-180
JournalEmpirical Economics
Volume42
Issue number1
DOIs
Publication statusPublished - Feb 2012

Citation

Woo, C. K., Zarnikau, J., & Kollman, E. (2012). Exact welfare measurement for double-log demand with partial adjustment. Empirical Economics, 42(1), 171-180. doi: 10.1007/s00181-010-0416-1

Keywords

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

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