A note on welfare measures Jorge Soares ∗ George Washington University May 2003 Abstract I show that the “consumption variation” approach, commonly used in infinitely lived agent models to measure the welfare impact of a policy, is not accurate in overlapping generations environments. While in an infinitely lived agent environment the consumption variation can be shown to be equivalent to a measure based on the Hicks compensation principle, this is not true in overlapping generations economies. JEL Classification: E0 Keywords: welfare measure, overlapping generations, infinitely-lived agents. ∗ Department of Economics, 2201 G St. NW, George Washington University, Washington, DC 20052. Tel. (202) 994-0192, E-mail jsoares@gwu.edu. 1