Policy Evaluation Using a Consumer Surplus Approach

The most straightforward policy evaluation model is the consumer surplus approach, which adopts a partial equilibrium analysis framework. Using consumer surplus, which can be measured by the area to the left of the demand curve, this framework is extremely simple yet applicable in a surprising number of cases. Various contrivances are required in order to apply the consumer surplus approach to the evaluation of specific policies, and failure to apply it carefully is likely to result in significant bias. This paper looks at the evaluation of fuel regulations in the U.S. and highway policies in Japan as examples of applying the consumer surplus approach, and examines the various issues that arise in actual application of the model.