AEA Papers and Proceedings
ISSN 2574-0768 (Print) | ISSN 2574-0776 (Online)
Quasilinearity and Its Discontents: Public-Good Regulation with Consumer Risk Aversion and Income Effects
AEA Papers and Proceedings
(pp. 532–537)
Abstract
In the partial-equilibrium literature on regulation, the usual measure of social welfare is a weighted average of expected profit and expected consumers' surplus. It is justified if two strong quasilinearity assumptions hold on each consumer's von Neumann–Morgenstern utility: income-risk neutrality and no income effects, assumptions that rule out matters of first-order importance for regulation under uncertainty. I review and extend known results on how risk aversion and income effects change Weitzman’s classic result on prices versus quantities. And I present preliminary results on an optimal regulatory policy for risk-averse consumers, unconstrained to just prices or quantities.Citation
Schlee, Edward E. 2026. "Quasilinearity and Its Discontents: Public-Good Regulation with Consumer Risk Aversion and Income Effects." AEA Papers and Proceedings 116: 532–537. DOI: 10.1257/pandp.20261065Additional Materials
JEL Classification
- D12 Consumer Economics: Empirical Analysis
- D81 Criteria for Decision-Making under Risk and Uncertainty
- D91 Micro-Based Behavioral Economics: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
- H41 Public Goods
- Q54 Climate; Natural Disasters and Their Management; Global Warming