Hicksian Welfare Measures and the Normative Endowment Effect

We show that the Hicksian welfare measures of compensating variation and equivalent variation coincide if one of them is evaluated at a compensated income. The measures are nondecreasing in income if the varied attribute and income are complementary, and indirect utility is concave in income. Income monotonicity implies the normative endowment effect, which refers to a situation where the equivalent variation exceeds the compensating variation. We provide additional sufficient conditions for the normative endowment effect based on various properties of the compensated income and proximity of income to indifference points, respectively. Lastly, we discuss empirical implications, notably that in the global absence of an endowment effect both Hicksian welfare measures must be independent of income and the indirect utility function additively separable in income