WELFARE EFFECTS, OMITTED VARIABLES, AND THE EXTENT OF THE MARKET

This paper offers an economic interpretation of Kling's (1989) finding that single-price change measures of consumer surplus will provide an unbiased measure for a multiple-price change, provided the prices are perfectly correlated. The explanation lies in recognizing that correl ation in this case serves to define the commodity extent-of-the-market . Using this link, the paper demonstrates how the insights involved in defining general equilibrium demand functions or equivalently residua l demand models can be adapted to fit the issues raised with travel co st models in accounting for the effects of substitutes.