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Individual Welfare and the Demand for Financial Instruments

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  • Jehle, Geoffrey

Abstract

Individuals' demands for financial instruments are derived from a generalized Fisherian intertemporal consumption model. These are expressed in terms of the future value of the borrowing and lending in the initial period of an arbitrary time horizon, and are dependent on their current period prices or discount rates. An exact measure of the influence of these prices on individual welfare is constructed, observable surplus measures are defined which are analogous to ordinary consumer surplus, and the relationship of these observable surplus measures to the theoretically exact measure is specified. It is shown that with proper adaptation and interpretation, the entire spirit and substance of Willig's [11; 12] well-known solution to the problem of estimating individual welfare in ordinary markets can be carried over to the particular type of intertemporal decision-making which gives rise to market demands for financial instruments. Contrary to what appears to be generally presumed, proper observable surplus measures bearing a clear relationship to accepted theoretical measures of individual and social welfare are not properly calculated as simple areas under observable demands for financial instruments. However, it is shown that simple adaptations in the calculation of those areas suffice to enable precise welfare calculations to be made.

Suggested Citation

  • Jehle, Geoffrey, 1984. "Individual Welfare and the Demand for Financial Instruments," MPRA Paper 73410, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:73410
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    File URL: https://mpra.ub.uni-muenchen.de/73410/1/MPRA_paper_73410.pdf
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    References listed on IDEAS

    as
    1. Heggestad, Arnold A & Mingo, John J, 1976. "Prices, Nonprices, and Concentration in Commercial Banking," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 8(1), pages 107-117, February.
    2. Benston, George J, 1972. "Savings Banking and the Public Interest," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 4(1), pages 133-226, Part II F.
    3. Rhoades, Stephen A., 1982. "Welfare loss, redistribution effect, and restriction of output due to monopoly in banking," Journal of Monetary Economics, Elsevier, vol. 9(3), pages 375-387.
    4. Stephen A. Rhoades, 1977. "Structure-performance studies in banking: a summary and evaluation," Staff Studies 92, Board of Governors of the Federal Reserve System (U.S.).
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    Cited by:

    1. Jehle, Geoffrey, 1985. "Regulation and the Public Interest in Banking," MPRA Paper 73414, University Library of Munich, Germany.
    2. Cristina Lidia MANEA, 2016. "Financial products as alternatives to traditional deposits," The Audit Financiar journal, Chamber of Financial Auditors of Romania, vol. 14(137), pages 526-526, April.

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    More about this item

    Keywords

    Welfare; Consumer; Intertemporal;
    All these keywords.

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D9 - Microeconomics - - Micro-Based Behavioral Economics

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