The Kaldor–Hicks Potential Compensation Principle and the Constant Marginal Utility of Income

Martin, Stephen

doi:10.1007/s11151-019-09716-3

Cited by 9 publications

(7 citation statements)

References 29 publications

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“…Deadweight loss under imperfect competition 3 InMartin (2019), I consider the alternative specification that workers receive only wage income, while dividends are received by capitalists who do not consume widgets. The qualitative nature of the results is robust to the use of alternative assumptions about the ownership of firms.…”

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confidence: 99%

The Potential Compensation Principle and Constant Marginal Utility of Income

Martin

2019

Jpn Econ Rev

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In policy applications, industrial economists are wont to invoke the Kaldor–Hicks potential compensation principle to justify the use of deadweight loss as a measure of the welfare cost of market power. This usage rests on two assumptions. One of these assumptions, that changes in consumer and producer surplus are weighted equally, is well understood. The other assumption, that the marginal utility of income is constant, receives less attention. In a simple model, I show that if there is decreasing marginal utility of income, the use of deadweight loss as an index of market performance rests on shaky ground.

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confidence: 99%

The Potential Compensation Principle and Constant Marginal Utility of Income

Martin

2019

Jpn Econ Rev

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“…Aggregation can produce intransitive rankings of alternative allocations. Heterogeneity in marginal utility can break the link between surplus and utility (Martin 2019).…”

Section: Iiid Welfarementioning

confidence: 99%

“…use it to study the welfare effects of health insurance. More generally, industrial organization economists use it, in the form of deadweight loss, to evaluate the welfare consequences of market power(Martin 2019).…”

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confidence: 99%

Mortality Risk, Insurance, and the Value of Life

Bauer¹,

Lakdawalla²,

Reif³

2018

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We develop a new framework for valuing health and longevity improvements that departs from conventional but unrealistic assumptions of full annuitization and deterministic health. Our framework can value the prevention of mortality and of illness, and it can quantify the effects of retirement policies on the value of life. We apply the framework to life-cycle data and generate new insights absent from the conventional approach. First, treatment is up to five times more valuable than prevention, even when both extend life equally. This asymmetry helps explain low observed investment in preventive care. Second, severe illness can significantly increase the value of statistical life, helping to reconcile theory with empirical findings that consumers value life-extension more in bleaker health states. Third, retirement annuities boost aggregate demand for life-extension. We calculate that Social Security adds $10.6 trillion (11 percent) to the value of post-1940 longevity gains and would add $127 billion to the value of a one percent decline in future mortality.

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“…Depending on the volume of consumed units, utility increases, but the increments of utility, i.e., the consumer's satisfaction rates from the consumption realized, gradually decrease as consumption increases. This phenomenon is called diminishing marginal utility in micro-economic theory (Martin, 2019).…”

Section: Introductionmentioning

confidence: 99%

Price sensitivity testing as a basic tool for strategic pricing decisions

Kintler¹,

Remeňová²,

Kmety³

2023

Strategic Management

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Background: Data-driven decisions in each functional area of management, through all of the strategic levels, in the present time of dynamic changes in geopolitical and market conditions are necessary to achieve corporate (economic and social) goals, in line with securing future business success and sustainability. Because of this business need, we will focus in our research paper on price management, which can be seen as a supportive tool for strategic decisions, where competent decisions should be based on data-driven pricing decisions. Purpose: The aim of the research study is to identify what price consumers are prepared to pay for a new food product in a relatively saturated foreign market. The research study was conducted in the milk chocolate bar market segment. Study design: We applied the van Westendorp price sensitivity test to identify the range of acceptable prices for a product that is willing to enter a new foreign market. For this purpose, we used a milk chocolate bar product currently unknown in the Slovak market. Findings: In addition to the van Westendorp price sensitivity measurement, we used a non-parametric Mann Whitney U test to confirm the hypothesis that chocolate tasting will increase the likelihood of customers to pay a higher price for the tested product. The hypothesis mentioned above was statistically confirmed. Limitations: It is necessary to monitor customer reactions to a given price level and be prepared to optimize it. We did not address this part of the analysis in identifying a price that would be acceptable to consumers in terms of value perception, due to the scope of the study.

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The Kaldor–Hicks Potential Compensation Principle and the Constant Marginal Utility of Income

Cited by 9 publications

References 29 publications

The Potential Compensation Principle and Constant Marginal Utility of Income

The Potential Compensation Principle and Constant Marginal Utility of Income

Mortality Risk, Insurance, and the Value of Life

Price sensitivity testing as a basic tool for strategic pricing decisions

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