Compensated variation in random utility models
Working paper
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http://hdl.handle.net/11250/180297Utgivelsesdato
2001Metadata
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- Discussion Papers [1002]
Sammendrag
Abstract:
In this paper we introduce the notion of random expenditure function and derive the distribution of the
expenditure function and corresponding compensated choice probabilities in the general case when
the (random) utilities are nonlinear in income. We also derive formulae for expenditure and choice
under price (policy) changes conditional on the initial utility level. This is of particular interest for
welfare measurement because it enables the researcher to analyze the distribution of Compensating
variation.
Keywords: Random expenditure function, Compensated choice probabilities, Compensating
variation.