Title: Economic welfare evaluation in an era of rapid technological change
Authors: COOPER RusselMCLAREN KeithFAHD RehmanSZEWCZYK WOJCIECH
Citation: ECONOMICS LETTERS vol. 131 p. 38-40
Publisher: ELSEVIER SCIENCE SA
Publication Year: 2015
JRC N°: JRC96097
ISSN: 0165-1765
URI: http://www.sciencedirect.com/science/article/pii/S0165176515001020
http://publications.jrc.ec.europa.eu/repository/handle/JRC96097
DOI: 10.1016/j.econlet.2015.03.009
Type: Articles in periodicals and books
Abstract: In an era of rapid technological change, from the perspective of welfare measurement a case can be made for modifying currently popular consumer demand systems. The case is based on the importance of the income effect. In particular it is important to avoid a problematic characteristic of some popular demand systems which we term effective homotheticity. This characteristic compromises the ability of counterfactual analyses to distinguish different sized welfare effects at different income levels. The paper proposes an appropriate modification to two popular demand systems and derives the implied welfare evaluation formula required for counterfactual analysis of non-homothetic income effects.
JRC Directorate:Growth and Innovation

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