NONPARAMETRIC-ESTIMATION OF EXACT CONSUMERS-SURPLUS AND DEADWEIGHT LOSS

We apply nonparametric regression models to estimation of demand curve s of the type most often used in applied research. From the demand cur ve estimators we derive estimates of exact consumers surplus and deadw eight loss, which are the most widely used welfare and economic effici ency measures in areas of economics such as public finance. We also de velop tests of the symmetry and downward sloping properties of compens ated demand. We work out asymptotic normal sampling theory for kernel and series nonparametric estimators, as well as for the parametric cas e. The paper includes an application to gasoline demand. Empirical que stions of interest here are the shape of the demand curve and the aver age magnitude of welfare loss from a tax on gasoline. In this applicat ion we compare parametric and nonparametric estimates of the demand cu rve, calculate exact and approximate measures of consumers surplus and deadweight loss, and give standard error estimates. We also analyze t he sensitivity of the welfare measures to components of nonparametric regression estimators such as the number of terms in a series approxim ation.