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Can Weak Substitution be Rehabilitated?


Smith, V. K., Evans, M. F., Banzhaf, H. S., & Poulos, C. (2008). Can Weak Substitution be Rehabilitated? (NBER Working Paper No. 13903; No. BM-). Cambridge, MA: The National Bureau of Economic Research.


This paper develops a graphical analysis and an analytical model that demonstrate how weak substitution can be used for non-market valuation. Both weak complementarity and weak substitution can be evaluated as restrictions that allow quantity or quality changes in non-market goods to be described as price changes that yield equivalent changes in individual well being. They are Hicksian equivalents in that the price changes yield the same utility changes as would the quantity or quality changes. After discussion of several potential applications of weak substitution, the paper develops the parallel between the restriction and recent strategies from modeling differentiated goods.