Abstract
In this paper we show that even if consumers' surpluses are known precisely, there are severe difficulties in using them to make consistent social-welfare judgements. In order for the Hicksian surpluses to be used, consumers must face the same prices and preferences must have affine parallel Engel curves. The cost-benefit rule must be the (possibly weighted) sum of the surpluses. We also analyze the Marshallian measure.
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We are indebted to Alan Abouchar, David Maloney, Robert Pollak, John Weymark, Robert Willig and two anonymous referees for helpful comments and criticisms. We also wish to thank the Social Sciences and Humanities Research Council of Canada for research support
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Blackorby, C., Donaldson, D. Consumers' surpluses and consistent cost-benefit tests. Soc Choice Welfare 1, 251–262 (1985). https://doi.org/10.1007/BF00649260
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DOI: https://doi.org/10.1007/BF00649260