Further resources on the relationship between consumer surplus,
compensating variation, equivalent variation.
These teaching notes from the University of Sussex provide a simple and
very clear summary of the concepts of CS, CV and EV, including some useful
exercises.
http://www.sussex.ac.uk/Units/economics/micro1/lectures/surplus.doc
How do Hicks’ utility theory concepts of CV and EV correspond to the
concepts of WTP and WTA is the contingent valuation literature?
Hicks’ EV/CV concepts ‘map’ to WTP/WTA in the following way:
CV gain = the maximum a household is willing to pay (WTP) to obtain the
increase in utility arising from the change in the state of the world.
CV loss = the minimum sum a consumer is willing to accept (WTA) i.e. will
require in compensation for the utility loss associated with a change in the
state of the world.
EV gain = the minimum sum a household is willing to accept (WTA) as
compensation if they are to forgo a utility-enhancing change in the state of
the world.
EV loss = the maximum amount a household is willing to pay (WTP) to
prevent a utility-decreasing change in the state of the world.
For an extended discussion of the relationship between these concepts, see:
Ahlheim M, Bucholz, W. (2004) WTP or WTA: is that the question?
Reflections on the differences between willingness to pay and willingness to
accept.
www.wiwi.uni-regensburg.de/buchholz/forschung/buchholz/WTP_%20WTA.pdf
Nancy Devlin
March 18th 2005