Mixed diamond goods and anomalies in consumer theory. Upward-sloping compensated demand curves with unchanged diamondness

Research output: Contribution to journalArticleResearchpeer-review

11 Citations (Scopus)

Abstract

Mixed diamond goods are valued both for their intrinsic consumption effects and their values. Even ignoring a changing marginal utility of income, the Marshallian measure of consumer surplus has to be weighted by the share of the intrinsic marginal utility in aggregate marginal utility. Unfortunately, this share is not directly observable from market data even given idealized information. Roy's equality (identity) does not hold in the presence of the diamond effect. More surprisingly, demand curves for mixed diamond goods with no inferiority may be upward-sloping, even if the degree of the diamond effect is unchanged. A mixed diamond good may be consumed until its intrinsic consumption effect is negative, making a negative burden (not excess burden) of taxation possible.

Original languageEnglish
Pages (from-to)287-293
Number of pages7
JournalMathematical Social Sciences
Volume25
Issue number3
DOIs
Publication statusPublished - May 1993

Keywords

  • intrinsic marginal utility
  • Marshallian measure
  • negative burden
  • Roy's equality

Cite this