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Consumer's Surplus and Price Uncertainty

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  • Choi, E. Kwan
  • Johnson, Stanley R.

Abstract

This paper investigates the conditions under which expected equivalent variation provides a correct ranking of stabilized and uncertain price situations. Expected equivalent variation can be recovered from ordinal preferences whereas ex ante equivalent variation requires additional information regarding con sumer attitudes toward income risk. The two measures are equal for income risk-neutral consumers. More important for applied welfare analysis where income risk aversion is presumed, expected equivalent variation provides a lower bound for ex ante equivalent variation. These two features of expected equivalent variation commend it as a viable welfare measure for applied work.

Suggested Citation

  • Choi, E. Kwan & Johnson, Stanley R., 1987. "Consumer's Surplus and Price Uncertainty," Staff General Research Papers Archive 10601, Iowa State University, Department of Economics.
    • Handle: RePEc:isu:genres:10601
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    Cited by:

    1. Bernardo Moreno & Jose L. Torres, 2007. "Output Subsidies and Quotas under Uncertainty and Firm Heterogeneity," International Journal of Business and Economics, School of Management Development, Feng Chia University, Taichung, Taiwan, vol. 6(2), pages 147-160, August.
    2. Charles Blackorby & David Donaldson & John A. Weymark, 2008. "Hicksian Surplus Measures of Individual Welfare Change When There is Price and Income Uncertainty," Studies in Choice and Welfare, in: Prasanta K. Pattanaik & Koichi Tadenuma & Yongsheng Xu & Naoki Yoshihara (ed.), Rational Choice and Social Welfare, pages 195-213, Springer.
    3. Kim, Tae-Kyun, 1989. "The factor bias of technical change and technology adoption under uncertainty," ISU General Staff Papers 1989010108000010138, Iowa State University, Department of Economics.
    4. Stennek, Johan, 1999. "The expected consumer's surplus as a welfare measure," Journal of Public Economics, Elsevier, vol. 73(2), pages 265-288, August.
    5. Tsur, Yacov & Zilberman, David, 1989. "Certainty Equivalent Prices And Producer Welfare Under Output Price Uncertainty," Staff Papers 13562, University of Minnesota, Department of Applied Economics.
    6. Eom, Young Sook, 1993. "Pesticide Residue Risks, Produce Choice, and Valuation of Food Safety: A Random Utility Approach," Working Papers 116113, Regional Research Project NE-165 Private Strategies, Public Policies, and Food System Performance.
    7. Finkelshtain, Israel & Kella, Offer, 1991. "Obtaining contingent bounds for non-contingent equivalent variations," Economics Letters, Elsevier, vol. 36(3), pages 257-261, July.

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