Estimating the welfare effects of policies affecting input markets

by Daniel F. Kohler

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This report examines alternative methodologies for estimating the welfare effects of taxing an input. It is found that the resource costs of such a tax as well as the transfer to the taxing authority are reflected in the input market as well as the markets for the outputs produced with this input. Furthermore, it is shown that in output markets the consumer's share of these welfare effects can be identified separately, but not the shares of producers of inputs and producers of outputs (users of inputs), while in the input markets the share of producers of inputs can be identified separately. For situations where income effects are important, methods are developed that allow for estimating the Hicksian welfare measures, which are theoretically more correct and which may differ from the more familiar Marshallian ones under the circumstances.

This report is part of the RAND Corporation Report series. The report was a product of the RAND Corporation from 1948 to 1993 that represented the principal publication documenting and transmitting RAND's major research findings and final research.

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