The ugly truth about consumer's surplus

Abstract

30. We have seen that most of the heresies rejected in Mishan have at least an element of truth in them formal or real. Either the conflict is apparent, not real; or Mishan is incorrect in his understanding of the problems which all relate to interpretation of measurement, and are nothing to do with the rational status of ordinalism. From a practical point of view the following propositions may be asserted: (A) For the question most frequently asked of consumer's surplus the EV provides a correct answer. (B) The CV cannot always be relied on to do so. (C) But there are other circumstances, in which the reverse is true. (D) The Marshall Measure is easier to use than either and requires less data. It will frequently provide a correct answer, but requires for its full validation certain conditions which can be expressed in terms of the marginal utility of income. (E) Use of the Marshall measure implies that one has to face the problem of “path dependence”.