The Rule-of-a-Half for the measurement of users’ benefits and its microeconomic foundation

Author/s Paolo Delle Site
Publishing Year 2023 Issue 2023/2 Language Italian
Pages 21 P. 149-169 File size 203 KB
DOI 10.3280/EP2023-002001
DOI is like a bar code for intellectual property: to have more infomation click here

Below, you can see the article first page

If you want to buy this article in PDF format, you can do it, following the instructions to buy download credits

Article preview

FrancoAngeli is member of Publishers International Linking Association, Inc (PILA), a not-for-profit association which run the CrossRef service enabling links to and from online scholarly content.

The measurement of users’ benefits is a key ingredient of the economic evaluation of projects and policies. The rule-of-a-half (RoH) is part of the consolidated prac- tice at international level. However, its intuitive justification and microeconomic foundation have not been cast in full. The paper aims to fill this gap. As to the intuitive justification, we provide the mathematical developments that yield the RoH starting from the average values of the benefits for the non-shifting and shift- ing demand. As to the theoretical foundation, we consider two cases. The one of classical demand theory, and the one of discrete choices with random utility. For both, literature obtains the RoH as an approximation of the surplus line integral. As to the first, we formulate a consumer’s behaviour model with numéraire and quasi-linear preferences with quadratic utility that allow demand and indirect util- ity to be expressed as function of generalised costs. We prove that the RoH pro- vides the approximate value of the Marshallian surplus, compensating variation and equivalent variation of the representative consumer. As to the second, we con- sider a model without income effect and additive random terms. We prove that the RoH provides the approximate value of the expectations of the compensating var- iation and equivalent variation.

Keywords: compensating variation, discrete choice, equivalent variation, random utility, rule-of-a-half

Jel codes: D11, D60

  1. Choné P., Linnemer L. (2020). Linear demand systems for differentiated goods: Overview and user’s guide. International Journal of Industrial Organization, 73, 102663.
  2. Hotelling H. (1938). The general welfare in relation to problems of taxation and of railway and utilityrates. Econometrica, 6(3), 263-249.
  3. Jara-Díaz S.R., Farah M. (1988). Valuation of users’ benefits in transport systems. Transport Reviews, 8(3), 197-218.
  4. Jara-Díaz S.R. (1990). Consumer’s surplus and the value of travel time savings. Transportation Research Part B: Methodological 24(1), 73-77.
  5. Jara-Díaz S.R. (2007). Transport Economic Theory. Amsterdam: Elsevier.
  6. Ma S., Kockelman K.M., Fagnant D.J. (2015). Welfare analysis using logsum dif- ferences versus rule of half. Series of case studies. Transportation Research Rec- ord: Journal of the Transportation Research Board, 2530, 73-83.
  7. Mas-Colell A., Whinston M.D., Green J.R. (1995). Microeconomic Theory. New York: Oxford University Press.
  8. Massiani J., Maltese I. (2019). La regola della metà nella valutazione economica delle infrastrutture: utilità e coerenza. Rivista di Economia e Politica dei Tra- sporti, n. 2, art. 5.
  9. Massiani J., Maltese I. (2021). Il beneficio degli utenti nella valutazione dei progetti: confronto fra Regola della Metà, Logsum, Costi Generalizzati e gli altri. Rivista di Economia e Politica dei Trasporti, n. 3, art. 1.
  10. McFadden D. (1978). Modelling the choice of residential location. In: Karlqvist A., Lundqvist L., Snickars F., Weibull J. (eds.). Spatial Interaction Theory and Plan- ning Models. Amsterdam: North Holland.
  11. McFadden D. (1981). Econometric models of probabilistic choice. In: Manski C.F., McFadden D. (eds.). Structural Analysis of Discrete Data with Econometric Ap- plications. Cambridge MA: MIT Press.
  12. McFadden D. (1999). Computing willingness-to-pay in random utility models. In: Melvin J.R., Moore J.C., Riezman R. (eds.). Trade, Theory and Econometrics: Essays in Honor of John S. Chipman. London: Routledge.
  13. Neuburger H.L.I. (1971). User benefit in evaluation of transport and land use plans. Journal of Transport Economics and Policy, 5, 52-75.
  14. Singh N., Vives X. (1984). Price and quantity competition in a differentiated duo- poly. Rand Journal of Economics, 15(4), 546-554.
  15. Small K.A., Rosen H.S. (1981). Applied welfare economics with discrete choice models. Econometrica, 49, 105-129.
  16. Takayama A. (1994) Analytical Methods in Economics. Ann Arbor: University of Michigan Press.
  17. Tresidder J.O., Meyers D.A., Burrell J.E., Powell T.J. (1968). The London Trans- portation Study: methods and techniques. Proceedings of the Institution of Civil Engineers, 39, 433-464.
  18. Williams H.C.W.L. (1976). Travel demand models, duality relations and user bene- fits analysis. Journal of Regional Science, 16(2), 147-166.

Paolo Delle Site, La regola della metà per la misura dei benefici degli utenti ed il suo fondamento microeconomico in "ECONOMIA PUBBLICA " 2/2023, pp 149-169, DOI: 10.3280/EP2023-002001