The Path Dependency Problem of Marshallian Consumer's Surplus Revisited

Abstract

Literature addresses different concepts when dealing with the path dependency problem of Marshallian Consumer’s Surplus (MCS). Under the ‘classical’ version (e.g. Paul A. Samuelson, 1947) the path dependency problem disappears if utility is homothetic. In contrast, the textbook version claims that, also for homothetic utility, multiple price changes produce different MCS variations depending on the path along which prices are changing. This paper shows that path dependence in the textbook sense is not the result of inconsistencies in Marshallian demand theory but from falsely introducing path dependent assumptions on cross-price effects.If instead one follows standard microeconomic reasoning then the textbook version of the path dependency problem disappears; a result which is independent of the underlying utility function.