An Introduction to Modern Welfare EconomicsThis is the first book in welfare economics to be primarily intended for undergraduates and non-specialists. Concepts such as Pareto optimality in a market economy, the compensation criterion, and the social welfare function are explored in detail. Market failures are analysed by using different ways of measuring welfare changes. The book also examines public choice, and the issues of provision of public goods, median voter equilibrium, government failures, efficient and optimal taxation, and intergenerational equity. The three final chapters are devoted to applied welfare economics: methods for revealing people's preferences, cost-benefit analysis, and project evaluation in a risky world. The book is intended for introductory and intermediate courses in welfare economics, microeconomics, and public economics. It will also be suitable for courses in health economics, environmental economics, and cost-benefit analysis, as well as those undertaking project evaluations in government agencies and private firms. |
Contents
Introduction | 1 |
Pareto optimality in a market economy | 10 |
22 General equilibrium in a market economy | 11 |
23 The Pareto criterion in a market economy | 15 |
24 A concluding remark | 21 |
The compensation principle and the social welfare function | 22 |
32 The social welfare function | 27 |
33 Measurability and comparability | 29 |
75 Intergenerational equity | 97 |
76 On the possibility of a Paretian liberal | 99 |
How to overcome the problem of preference revelation practical methodologies | 102 |
82 The ClarkeGroves mechanism | 106 |
83 The travel costs method | 108 |
84 Hedonic prices | 110 |
Costbenefit analysis | 112 |
91 Preliminaries | 113 |
34 The optimal distribution of welfare and income | 32 |
35 Concluding remarks | 39 |
Measuring welfare changes | 40 |
42 Multiple price changes | 42 |
43 Aggregation of consumer surplus | 47 |
44 Compensating and equivalent variations | 49 |
45 Some further results | 53 |
46 Welfare measures for firms | 56 |
47 Concluding remarks | 58 |
Market failures causes and welfare consequences | 60 |
52 Monopoly | 61 |
53 Public goods | 63 |
54 External effects | 64 |
55 Market imbalances | 66 |
56 Other sources of market failures | 68 |
58 Concluding remarks | 70 |
Public choice | 71 |
62 The typical taxpayer | 76 |
63 Lindahl equilibrium | 78 |
64 The median voter equilibrium | 79 |
65 What do voters and bureaucrats maximize? | 81 |
A Smorgasbord of further topics | 86 |
72 Coases theorem | 89 |
73 Local public goods | 92 |
92 Taxes on inputs and outputs | 116 |
93 Imperfect competition in input markets | 118 |
94 Externalities | 120 |
95 Unemployed resources | 121 |
96 Trade restrictions | 124 |
97 Use of present value | 126 |
98 Choice of discount rate | 128 |
99 Distributional considerations | 131 |
910 Sensitivity analysis | 133 |
The treatment of risk | 135 |
102 Attitudes towards risk | 137 |
103 Welfare analysis of risky projects | 139 |
104 The value of information and irreversible consequences | 144 |
105 A concluding remark | 145 |
The consumer and the firm | 147 |
A2 Utility maximization and demand functions | 152 |
A3 Substitution and income effects | 154 |
A4 The perfectly competitive firm | 157 |
A5 Cost minimization and profit maximization | 159 |
A6 Some further notes | 163 |
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Common terms and phrases
aggregate amount appendix assumed assumption attained budget line cent chapter commodity bundles compensation principle considered consumer surplus consumer's consumption cost of producing cost-benefit analysis curve in figure demand curve demand functions discount rate discussion distribution dollar economists efficient equal to area equation equilibrium evaluate example extra unit firm's household income effect increase individuals initial input investment labour loss marginal cost marginal rate marginal utility marginal willingness market failures market price maximize median voter money measures obtain outcome output price p₁ Pareto criterion Pareto optimality Pareto principle Pareto-efficient Pareto-efficient allocation perfect market economy pollution preferences present value price change problem producer surplus reader redistribute result revenue risk slope social cost social welfare function social welfare indifference society supply curve tax price taxation units of output utility function utility level utility possibilities frontier welfare economics welfare indifference curves willingness to pay x₁