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Journal of Public Economics

The Expected Consumer’s Surplus as a Welfare Measure

Journal Article
Reference
Stennek, Johan (1999). “The Expected Consumer’s Surplus as a Welfare Measure”. Journal of Public Economics 73(2), 265–288. doi.org/10.1016/S0047-2727(99)00007-9

Author
Johan Stennek

The expected consumer’s surplus (ECS) is often used as a monetary measure of consumer welfare. Examples include the theory of regulation, competition policy, and price stabilization. This paper shows that, in general, the ECS does not convey any information about the consumer’s ranking of price distributions, if these differ in risk. Moreover, the ECS provides rigorous monetary assessments of consumer welfare if, and only if, the consumer is risk-neutral, and has zero income-elasticity of demand. Since empirical estimates suggest that these conditions are violated, the paper serves as a warning to the continued use of the ECS.