Journal of Economic Theory and Econometrics: Journal of the Korean Econometric Society
Home

About this journal
   Aims and scope

   Editorial board

Submit your article

Archive

Search

Journal of Economic Theory and Econometrics
JETEM/계량경제학보/計量經濟學報/JKES
Journal of the Korean Econometric Society

A Note on the Second-order Approximation of Hicksian Welfare Change Indicators

Vol.21, No.1, March , 68–82


English Version |  Korean Version
  •   (National Pension Research Institute)

PDF
Abstract  

In 1930-1940, Hicks defined the welfare change indicators such as the equivalent variation and the compensating variation using the expenditure function and provided their approximation formular using the Taylor expansion. The famous Harberger's welfare indicator is a second order approximation of the Hicksian welfare change indicators. Weitzman(1988) showed that a refinement is needed for the Harberger's welfare indicator based on the modern microeconomic theory. Also Diewert(1992) extended Weitzman's result by providing two refined formular. This note claims that conventional second order Taylor approximation is not a good method in case of the expenditure function as seen from the standard numerical analysis theory. This note derives four kinds of welfare change indicators succinct way using a variant of Taylor second order approximation. The two among the four are the same with Diewert's formulas.


Keywords
   Expenditure function, Welfare change indicator, Second-order approximation

JEL classification codes
   D11,D12
Links

KCI list
Korean ES
JETEM at SCOPUS

Powered by MathJax