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Compensating the compensating variation
Guerra, Ana Isabel
Sancho, Ferran
The message of this note is that in a general equilibrium setting the compensating variation is numéraire dependent. In contrast, the equivalent variation is neutral regarding the choice of value units. We illustrate with a simple example and propose an even simpler solution to overcome this bias in the compensating variation; all that is required to have a correct welfare estimate is to compensate the compensating variation by normalization with a price index. This type of correction is necessary to overcome the often blind implementation of welfare measures in numerical general equilibrium
2017-02
Compensating variation
Equivalent variation
Konüs index
Computable general equilibrium
33 - Economia
Microeconomia
L'accés als continguts d'aquest document queda condicionat a l'acceptació de les condicions d'ús establertes per la següent llicència Creative Commons: http://creativecommons.org/licenses/by-nc-nd/4.0/
4 p.
Working Paper
Universitat Autònoma de Barcelona. Unitat de Fonaments de l'Anàlisi Econòmica
Working papers;961.17
         

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