<p>In Allcott and Greenstone's paper, <a href="https://www.aeaweb.org/articles?id=10.1257/jep.26.1.3" rel="nofollow noreferrer">"Is there an energy efficiency gap?"</a>, one finds the following figure<a href="https://i.sstatic.net/Szrip.png" rel="nofollow noreferrer"><img src="https://i.sstatic.net/Szrip.png" alt="enter image description here"></a></p>

<p>I quote now from p. 13:</p>

<blockquote>
  <p>"When there are investment inefficiencies, the original marginal
  consumer at quantity <em>q</em> gains amount <em>af</em> from being induced to buy the
  energy efficient good. In fact, there are allocative gains from
  inducing each of the consumers between <em>q</em> and and <em>q′′</em> to purchase the energy efficient good, as each of these consumers has
  benefits that are larger than incremental cost <em>c</em>. The total private
  welfare gains are illustrated by the triangle <em>abf</em>...These benefits are then
  compared against the costs of the policy. A subsidy involves a
  transfer of public funds to consumers of amount <em>hbjk</em> , as illustrated
  by the shaded rectangle."</p>
</blockquote>

<p>My question is rather straightforward: why are the benefits of the subsidy given only by the triangle <em>abf</em>, and not by all of the area between the two lines <em>D</em> and <em>D'</em> above the incremental cost line <em>c</em>? Is it not in fact true that every consumer upto the point <em>j</em> on the line <em>D</em> sees a gain equal to vertical distance between his present position and <em>D'</em>?</p>

CC BY-SA 4.0
2020-03-26T09:25:12.483Z
No, I mean _abf_ plus the quadrilateral with one side _af_ and then extending upwards to the left.
Anthony
<microeconomics><energy-economics>
Calculating Social Welfare from an Energy Subsidy
Anthony
# Calculating Social Welfare from an Energy Subsidy

(Asked by: username_0 on 2020-03-12)

In Allcott and Greenstone's paper, ["Is there an energy efficiency gap?"](https://www.aeaweb.org/articles?id=10.1257/jep.26.1.3), one finds the following figure[![enter image description here](https://i.sstatic.net/Szrip.png)](https://i.sstatic.net/Szrip.png)

I quote now from p. 13:

> "When there are investment inefficiencies, the original marginal
> consumer at quantity *q* gains amount *af* from being induced to buy the
> energy efficient good. In fact, there are allocative gains from
> inducing each of the consumers between *q* and and *q′′* to purchase the energy efficient good, as each of these consumers has
> benefits that are larger than incremental cost *c*. The total private
> welfare gains are illustrated by the triangle *abf*...These benefits are then
> compared against the costs of the policy. A subsidy involves a
> transfer of public funds to consumers of amount *hbjk* , as illustrated
> by the shaded rectangle."

My question is rather straightforward: why are the benefits of the subsidy given only by the triangle *abf*, and not by all of the area between the two lines *D* and *D'* above the incremental cost line *c*? Is it not in fact true that every consumer upto the point *j* on the line *D* sees a gain equal to vertical distance between his present position and *D'*?

**Tags:** microeconomics, energy-economics
> **Comments:**
> **username_0**: No, I mean _abf_ plus the quadrilateral with one side _af_ and then extending upwards to the left.  

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## 0 answers

