Surplus Maximization and Optimality
نویسنده
چکیده
I identify assumptions under which policies that maximize expected surplus are Pareto Optimal–even when expected consumer surplus does not even locally represent preferences over price-income lotteries. Besides the oft-made partial equilibrium assumptions that only one price varies, and that income changes do not affect demand, the two other assumptions are that every consumer’s indirect utility function is supermodular in price and income; and policies order prices by a single-crossing property. Supermodularity holds precisely if relative risk aversion exceeds the income elasticity of demand, a mild condition. The single-crossing property appears strong, but holds in many applications that use expected surplus. JEL Classification: D61, D8.
منابع مشابه
On Optimality Conditions for Maximizations with Respect to Cones
For a Pareto maximization problem defined in infinite dimensions in terms of cones, relationships among several types of maximal elements are noted and optimality conditions are developed in terms of tangent cones.
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