Information About ™Compensating Variation |
| CATEGORIES ABOUT COMPENSATING VARIATION | |
| welfare economics | |
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where is is a function that gives the minimum expenditure required to reach utility given prices . Compensating variation is the metric behind Kaldor-Hicks Efficiency ; if the winners of from a particular policy change can compensate the losers it is Kaldor-Hicks efficient, even if the compensation is not made. Equivalent Variation (EV) is a closely related measure that uses old prices and the new utility level. It measures the amount of money a consumer would pay to avoid a price change, before it happens. For quasi-linear preference EV=CV=Consumer surplus, but this is not always true. SEE ALSO REFERENCES Hicks, J.R. Value and capital: An inquiry into some fundamental principles of economic theory Oxford: Clarendon Press, 1939 |
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