Empirical Economics

, Volume 42, Issue 1, pp 171–180

Exact welfare measurement for double-log demand with partial adjustment

Authors

  • C. K. Woo
    • Energy and Environmental Economics, Inc.
    • Hong Kong Energy Studies CentreHong Kong Baptist University
    • Frontier Associates LLC
    • LBJ School of Public Affairs and Division of StatisticsThe University of Texas at Austin
  • E. Kollman
    • Energy and Environmental Economics, Inc.
Article

DOI: 10.1007/s00181-010-0416-1

Cite this article as:
Woo, C.K., Zarnikau, J. & Kollman, E. Empir Econ (2012) 42: 171. doi:10.1007/s00181-010-0416-1

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%.

Keywords

Double-log demandWelfare measuresConsumer surplusCompensating variation

JEL Classification

D60Q48C53C22

Copyright information

© Springer-Verlag 2010