Expected Consumer's Surplus and the Welfare Effects of Price Stabilization

摘要: Suppose a consumer faces price which is uncertain ex ante. A question often arises whether the would benefit from stabilization policy under then be fixed and known with certainty. Many authors have addressed this by calculating expected compensating variation of change; others used Marshallian consumer's surplus, explanation that it good approximation to variation.2 An important unresolved issue, however, does in fact provide valid ranking stochastic prices against stabilized prices, i.e., agreement given utility. In Section 2, we demonstrate not general utility indicator. essence, while comparisons uncertainty require use cardinal properties (von NeumannMorgenstern) functions, surplus measures depend only on ordinal preference rankings. Expected variation, then, completely insensitive to, cannot reflect, precise factor interest suchstudies: attitudes toward risk. We derive set restrictions function are necessary order for measure. see policies can evaluated if preferences assumed satisfy quite stringent requirements. This constrast familiar certainty case always provides correct