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Functional Forms, Exogenous Shifts, and Economic Surplus Changes
Author(s) -
Zhao Xueyan,
Mullen John D.,
Griffith Gary R.
Publication year - 1997
Publication title -
american journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.949
H-Index - 111
eISSN - 1467-8276
pISSN - 0002-9092
DOI - 10.2307/1244281
Subject(s) - economics , displacement (psychology) , welfare , econometrics , mathematical economics , microeconomics , psychotherapist , market economy , psychology
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.