Get 20M+ Full-Text Papers For Less Than $1.50/day. Start a 14-Day Trial for You or Your Team.

Learn More →

Hicksian Welfare Measures and the Normative Endowment Effect

Hicksian Welfare Measures and the Normative Endowment Effect Abstract We show that the Hicksian welfare measures of compensating variation and equivalent variation coincide if one of them is evaluated at a compensated income. The measures are nondecreasing in income if the varied attribute and income are complementary, and indirect utility is concave in income. Income monotonicity implies the normative endowment effect, where the equivalent variation exceeds the compensating variation. We provide sufficient conditions for the normative endowment effect and discuss empirical implications. In the global absence of a strict (anti-) endowment effect, both Hicksian welfare measures must be independent of income and the indirect utility function additively separable in income. (JEL D11, D63 ) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Economic Journal: Microeconomics American Economic Association

Hicksian Welfare Measures and the Normative Endowment Effect

Loading next page...
 
/lp/american-economic-association/hicksian-welfare-measures-and-the-normative-endowment-effect-4iG1PvuRhT
Publisher
American Economic Association
Copyright
Copyright © 2010 by the American Economic Association
Subject
Articles
ISSN
1945-7685
eISSN
1945-7685
DOI
10.1257/mic.2.4.171
Publisher site
See Article on Publisher Site

Abstract

Abstract We show that the Hicksian welfare measures of compensating variation and equivalent variation coincide if one of them is evaluated at a compensated income. The measures are nondecreasing in income if the varied attribute and income are complementary, and indirect utility is concave in income. Income monotonicity implies the normative endowment effect, where the equivalent variation exceeds the compensating variation. We provide sufficient conditions for the normative endowment effect and discuss empirical implications. In the global absence of a strict (anti-) endowment effect, both Hicksian welfare measures must be independent of income and the indirect utility function additively separable in income. (JEL D11, D63 )

Journal

American Economic Journal: MicroeconomicsAmerican Economic Association

Published: Nov 1, 2010

There are no references for this article.