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Economic welfare evaluation in an era of rapid technological change

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  • Cooper, Russel J.
  • McLaren, Keith R.
  • Rehman, Fahd
  • Szewczyk, Wojciech A.

Abstract

In an era of rapid technological change, from the perspective of welfare measurement a case can be made for modifying currently popular consumer demand systems. The case is based on the importance of the income effect. In particular it is important to avoid a problematic characteristic of some popular demand systems which we term effective homotheticity. This characteristic compromises the ability of counterfactual analyses to distinguish different sized welfare effects at different income levels. The paper proposes an appropriate modification to two popular demand systems and derives the implied welfare evaluation formula required for counterfactual analysis of non-homothetic income effects.

Suggested Citation

  • Cooper, Russel J. & McLaren, Keith R. & Rehman, Fahd & Szewczyk, Wojciech A., 2015. "Economic welfare evaluation in an era of rapid technological change," Economics Letters, Elsevier, vol. 131(C), pages 38-40.
    • Handle: RePEc:eee:ecolet:v:131:y:2015:i:c:p:38-40
    DOI: 10.1016/j.econlet.2015.03.009
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    References listed on IDEAS

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    1. William A. Barnett, 2004. "Tastes and Technology: Curvature Is Not Sufficient for Regularity," Contributions to Economic Analysis, in: Functional Structure and Approximation in Econometrics, pages 429-433, Emerald Group Publishing Limited.
    2. Nicholas Oulton, 2012. "How To Measure Living Standards And Productivity," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 58(3), pages 424-456, September.
    3. Oecd, 2013. "Measuring the Internet Economy: A Contribution to the Research Agenda," OECD Digital Economy Papers 226, OECD Publishing.
    4. James Banks & Richard Blundell & Arthur Lewbel, 1997. "Quadratic Engel Curves And Consumer Demand," The Review of Economics and Statistics, MIT Press, vol. 79(4), pages 527-539, November.
    5. Russel J. Cooper & Keith R. McLaren, 1992. "An Empirically Oriented Demand System with Improved Regularity Properties," Canadian Journal of Economics, Canadian Economics Association, vol. 25(3), pages 652-668, August.
    6. Deaton, Angus S & Muellbauer, John, 1980. "An Almost Ideal Demand System," American Economic Review, American Economic Association, vol. 70(3), pages 312-326, June.
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    Cited by:

    1. Nicoleta Mihaela Florea & Georgeta Madalina Meghisan & Cristina Nistor, 2016. "Multiple Linear Regression Equation for Economic Dimension of Standard of Living," Finante - provocarile viitorului (Finance - Challenges of the Future), University of Craiova, Faculty of Economics and Business Administration, vol. 1(18), pages 103-108, November.
    2. K. K. Gary Wong & Belton M. Fleisher & Min Qiang Zhao & William H. McGuire, 2022. "Technical progress and induced innovation in China: a variable profit function approach," Journal of Productivity Analysis, Springer, vol. 57(2), pages 177-191, April.
    3. Fahd Rehman & Russel J. Cooper, 2017. "Consumer Expectations: A Residual Based Approach," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 63(4), pages 841-866, December.
    4. Ole Boysen, 2019. "When does specification or aggregation across consumers matter for economic impact analysis models? An investigation into demand systems," Empirical Economics, Springer, vol. 56(1), pages 137-172, January.

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    More about this item

    Keywords

    Welfare evaluation; Technological change; Non-measured economy; Consumer demand; AIDS; QAIDS;
    All these keywords.

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D60 - Microeconomics - - Welfare Economics - - - General

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