ABSTRACT

For some time I have thought that I would like to try to write a simple expository development of the method of “quasi-equivalent variation analysis” for the case of the Gorman Polar Form which John Chipman and I introduced in Chipman and Moore (1990) (I will refer to this article as “CM90” hereafter). In the earlier work, John and I were interested in developing a number of ideas other than quasi-equivalent variation analysis per se; and, as a result, one must read through a great deal of technical material before getting to a discussion of this technique. Moreover, some problems with the word processing software which was used for the production of the volume in which the 1990 article appears resulted in such a large number of “typos” that CM90 is extremely difficult to read. Consequently, it would seem that a simplified version of the paper itself would be useful; but, in fact, in this chapter I will develop a somewhat simplified version of the technique of “quasi-equivalent variation analysis” itself. Moreover, I will present a slightly different argument as to why such analysis should be of interest than is done in CM90, as well as a discussion of how and why such a method should be used. In the context of some examples, I will also explore the simplifications which are possible in the situation in which a subset of prices remains fixed throughout the analysis. A complete exploration of this case will have to await a later work, however. 1