Empirical Economics

, Volume 42, Issue 1, pp 171–180

Exact welfare measurement for double-log demand with partial adjustment

Article

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 demand Welfare measures Consumer surplus Compensating variation 

JEL Classification

D60 Q48 C53 C22 

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Copyright information

© Springer-Verlag 2010

Authors and Affiliations

  1. 1.Energy and Environmental Economics, Inc.San FranciscoUSA
  2. 2.Hong Kong Energy Studies CentreHong Kong Baptist UniversityKowloonHong Kong
  3. 3.Frontier Associates LLCAustinUSA
  4. 4.LBJ School of Public Affairs and Division of StatisticsThe University of Texas at AustinAustinUSA

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