American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Surplus Maximization and Optimality
American Economic Review
vol. 103,
no. 6, October 2013
(pp. 2585–2611)
Abstract
Expected consumer's surplus rarely represents preferences over price lotteries. Still, I give sufficient conditions for policies which maximize aggregate expected surplus to be interim Pareto Optimal. Besides two standard partial equilibrium conditions, I assume that feasible prices satisfy a single-crossing property; and each consumer's indirect utility satisfies increasing differences in the price and income. I use the result to extend well-known welfare conclusions beyond the knife-edge quasilinear utility case. Since increasing differences puts no upper bound on risk aversion, the result is useful for applications in which risk aversion is important.Citation
Schlee, Edward E. 2013. "Surplus Maximization and Optimality." American Economic Review, 103 (6): 2585–2611. DOI: 10.1257/aer.103.6.2585Additional Materials
JEL Classification
- D11 Consumer Economics: Theory
- D24 Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
- D42 Market Structure and Pricing: Monopoly
- D81 Criteria for Decision-Making under Risk and Uncertainty
- D83 Search; Learning; Information and Knowledge; Communication; Belief
- L42 Vertical Restraints; Resale Price Maintenance; Quantity Discounts