Calculating, With Income Effects, the Compensating Variation for a State Change


Journal article


E. Morey, Kathleen Greer Rossmann
Environmental and Resource Economics, vol. 39(2), 2008, pp. 83-90

DOI: https://link.springer.com/article/10.1007/s10640-007-9093-8

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APA   Click to copy
Morey, E., & Rossmann, K. G. (2008). Calculating, With Income Effects, the Compensating Variation for a State Change. Environmental and Resource Economics, 39(2), 83–90. https://doi.org/https://link.springer.com/article/10.1007/s10640-007-9093-8


Chicago/Turabian   Click to copy
Morey, E., and Kathleen Greer Rossmann. “Calculating, With Income Effects, the Compensating Variation for a State Change.” Environmental and Resource Economics 39, no. 2 (2008): 83–90.


MLA   Click to copy
Morey, E., and Kathleen Greer Rossmann. “Calculating, With Income Effects, the Compensating Variation for a State Change.” Environmental and Resource Economics, vol. 39, no. 2, 2008, pp. 83–90, doi:https://link.springer.com/article/10.1007/s10640-007-9093-8.


BibTeX   Click to copy

@article{e2008a,
  title = {Calculating, With Income Effects, the Compensating Variation for a State Change},
  year = {2008},
  issue = {2},
  journal = {Environmental and Resource Economics},
  pages = {83-90},
  volume = {39},
  doi = {https://link.springer.com/article/10.1007/s10640-007-9093-8},
  author = {Morey, E. and Rossmann, Kathleen Greer}
}

Abstract: One can easily obtain exact closed-form solutions for the compensating variation (and equivalent variation) in the presence of income e¤ects when the policy being evaluated can be described as a change in the state of the world and one is willing to assume the policy change does not change the individual’s epsilon draw. Alternatively, if one assumes the policy changes the epsilon draw, the expectation of the compensating variation is a complicated integral, typically without a closed-form. The assumption that the policy does not a¤ect one’s epsilon draw is common, and often reasonable, but little discussed.
keywords: compensating variation, epsilon draw, equivalent variation, random components, state change, state independence




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