Journal Article

Functional Forms, Exogenous Shifts, and Economic Surplus Changes

Xueyan Zhao, John D. Mullen and Gary R. Griffith

in American Journal of Agricultural Economics

Published on behalf of Agricultural and Applied Economics Association

Volume 79, issue 4, pages 1243-1251
Published in print November 1997 | ISSN: 0002-9092
Published online November 1997 | e-ISSN: 1467-8276 | DOI: http://dx.doi.org/10.2307/1244281
Functional Forms, Exogenous Shifts, and Economic Surplus Changes

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Conditions for exact welfare measures in equilibrium displacement modeling are examined. These relate to the functional form of supply and demand, the nature of the exogenous shift, and the definition of percentage changes. Approximation errors when these conditions are not met in empirical applications are investigated and analytical expressions for the errors derived. Significant errors are possible when a proportional shift is assumed. The assumptions underlying Alston and Wohlgenant's empirical findings are identified. The restriction that supply must be elastic is shown to be unnecessary.

Keywords: economic surplus; equilibrium displacement modeling; exogenous shift; functional form; D630

Journal Article.  0 words. 

Subjects: Welfare Economics

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