Title

The Nonparametric Approach to Applied Welfare Analysis

Document Type

Discussion Paper

Publication Date

4-1-2005

CFDP Number

1507

CFDP Pages

16

Abstract

Changes in total surplus and deadweight loss are traditional measures of economic welfare. We propose necessary and sufficient conditions for rationalizing consumer demand data with a quasilinear utility function. Under these conditions, consumer surplus is a valid measure of consumer welfare. For nonmarketed goods, we propose necessary and sufficient conditions on market data for efficient production , i.e., production at minimum cost. Under these conditions we derive a cost function for the nonmarketed good, where producer surplus is the area above the marginal cost curve.

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