The elevated status of the elasticity of marginal utility of consumption

Author: Evans David  

Publisher: Routledge Ltd

ISSN: 1466-4291

Source: Applied Economics Letters, Vol.11, Iss.7, 2004-06, pp. : 443-447

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Abstract

The latest UK Treasury guidance on appraisal and evaluation in central government raises the status of the elasticity of marginal utility of consumption (e). While estimates of e are sensitive to a measurement approach, a case is made for placing some emphasis on a method based on consumer demand analysis. Alternative demand models are estimated for the UK and from the best results an e value of 1.6 emerges. For EU countries both this and other methods can be used to measure e. This, for example, permits a cross-country comparison of alternative measures of the social discount rate on a methodologically consistent basis.