The marginal utility of money: A modern Marshallian approach to consumer choice∗
نویسندگان
چکیده
We reformulate neoclassical consumer choice by focusing on λ, the marginal utility of money. As the opportunity cost of current expenditure, λ is approximated by the slope of the indirect utility function of the continuation. We argue that λ can largely supplant the role of an arbitrary budget constraint in partial equilibrium analysis. The result is a better grounded, more flexible and more intuitive approach to consumer choice. JEL classification: D01, D03, D11.
منابع مشابه
Hedonic Pricing under Uncertainty: A Theoretical Consumer Behavior Model
A model of consumer behavior has been formulated by using an additive utility function and the hedonic pricing approach, in a virtual market. Since, there is a time lag between ordering and purchasing products (goods and services) online and receiving them, it means the consumer makes decision under uncertainty. The level of satisfaction with products with distinctive characteristics is describ...
متن کاملMeasuring Hicksian Welfare Changes From Marshallian Demand Functions
A problem persists in measuring the welfare effects of simultaneous price and income changes because the Hicksian compensating variation (CV) and equivalent variation (EV), while unique, are based on unobservable (Hicksian) demand functions, and observable (Marshallian) demand functions do not necessarily yield a unique Marshallian consumer's surplus (CS). This paper proposes a solution by a Ta...
متن کاملTractable Consumer Choice
We present a rational model of consumer choice, which can also serve as a behavioral model. The central construct is λ, the marginal utility of money, derived from the consumer’s rest-of-life problem. It provides a simple criterion for choosing a consumption bundle in a separable consumption problem. We derive a robust approximation of λ, and show how to incorporate liquidity constraints, indiv...
متن کاملReformulating the foundations of consumer choice theory and environmental valuation
The burgeoning field of environmental valuation has raised serious doubts about the fundamental axioms of consumer choice theory, the general validity of the Walrasian system and methodological individualism. This paper examines these aspects of consumer choice theory, paying particular attention to the pioneering contributions of Georgescu-Roegen. We argue that evidence from psychology, game t...
متن کاملMarshallian Money, Welfare, and Side-Payments
A link between a no-side-payment (NSP) market game and a sidepayment (SP) market game can be established by introducing a sufficient amount of an ideal utility-money of constant marginal utility to all agents. At some point when there is “enough money” in the system, if it is “well distributed” the new game will be a SP game. This game can also be related to a pure NSP game where a set of defau...
متن کامل