Conclusions
Lancaster's theory of consumer choice of quality attributes provides a foundation for benefit-cost analysis in a situation with quality changes. The traditional indices (Marshallian consumer surplus, the Hicksian variations, and the expenditure function index) were extended to incorporate quality attributes explicitly. In particular, the value of quality changes is captured in a simple additive term.
The value of quality changes may be estimated from actual consumption data or from experimental data. In either case, the estimates will be unbiased even when the “true” quality variables are unknown, as long as the hypothesized quality variables contain the true qualities in some linearly independent combination. In practice, data requirements will be drastically reduced when only a few goods and a few qualities are affected, or when the quality matrix is decomposable.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
References
G. S. Becker (1965): A Theory of the Allocation of Time, Economic Journal 75, pp. 493–517.
J. S. Chipman and J. C. Moore (1976): The Scope of Consumer's Surplus Arguments,in: A. M. Tang, F. M. Westfield, and J. S. Worley (eds.): Evolution, Welfare, and Time in Economics, Lexington, Mass., pp. 69–123.
N. A. Klevmarken (1977): A Note on New Goods and Quality Changes in the True Cost of Living Index in View of Lancaster's Model of Consumer Behavior, Econometrica45, pp. 163–173.
K.J. Lancaster (1966): A New Approach to Consumer Theory, Journal of Political Economy74, pp. 132–157.
K. J. Lancaster (1971): Consumer Demand: A New Approach, New York.
S. Rosen (1974): Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition, Journal of Political Economy82, pp. 34–35.
E. Silberberg (1972): Duality and the Many Consumer's Surpluses, American Economic Review62, pp. 942–952.
K. A. Small and S. Rosen (1981): Applied Welfare Economics with Discrete Choice Models, Econometrica49, pp. 105–130.
D. O. Stahl (1980): Indices of Individual Preference for Applied Welfare Economics, Working Paper # SL-8002, Alfred P. Sloan Foundation Workshop in Transportation Economics, Department of Economics, University of California, Berkeley.
D. O. Stahl (1981): Benefit-Cost Analysis with Quality Attributes, Institute for Transportation Studies Working Paper UCB-ITS/PRC-WP-80-2 (revised version), Berkeley.
D. O. Stahl (1982): Monotonic Variations of Consumer Surplus and Comparative Performance Results, unpublished.
R. D. Willig (1978): Incremental Consumer's Surplus and Hedonic Price Adjustment, Journal of Economic Theory17, pp. 227–253.
R. Winfrey (1975): Consumer Surplus Does Not Apply to Highway Transportation Economics, Transportation Research Record No.550, pp. 1–14.
E. E. Zajac (1979): Dupuit-Marshall Consumer's Surplus, Utility, and Revealed Preference, Journal of Economic Theory20, pp. 260–270.
Author information
Authors and Affiliations
Additional information
This research was supported in part by the Institute of Transportation Studies, University of California, Berkeley.
Rights and permissions
About this article
Cite this article
Stahl, D.O. On benefit-cost analysis with quality attributes. Zeitschr. f. Nationalökonomie 43, 273–287 (1983). https://doi.org/10.1007/BF01283575
Received:
Revised:
Issue Date:
DOI: https://doi.org/10.1007/BF01283575