Questions tagged [welfare-economics]
A branch of economics that focuses on the optimal allocation of resources and goods and how this affects social welfare. Welfare economics analyzes the total good or welfare that is achieve at a current state as well as how it is distributed. This relates to the study of income distribution and how it affects the common good.
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Integrating over the Y Axis: (∆CS)
The traditional formulae for consumer surplus is: $\text{CS} = \int_{0}^{x_0} [x(p_x,\overline{p_y}, \overline{m})]dx - x_0P_{x_0}$.
This is the area under the Marshallian demand curve, that is only ...
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Calculating the substitution effect with the derivative
Substitution Effect (SE) for a price increase of $P_x$ to $P_x'$ can be written as:
$h(P_x', P_y, U) - h(P_x, P_y, U) = ∆h$, where $h$ is Hicksian demand. Correct?
The Slutsky equations decomposes a ...
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Design of technology-neutral policy in the presence of multiple market failures
I am studying a paper by Aisbett, Cheng & Beck which considers the pros and cons of technological neutrality in green industrial policy. At the start of section 5.6 it refers to the well-known ...
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Endowment of an agent
I was going through the Shapley-Folkman-Starr Lemma (https://simons.berkeley.edu/sites/default/files/docs/3605/simons2.pdf) and I came across the term "endowment" of an agent.
My assumption ...
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What do you call a government intervention that includes both "government failures" and "second-best policies" but not "first-best policies"?
I'm trying to develop a framework where the idea is to advise on first-best solutions with the goal to reduce societal deadweight weight loss.
This means I will be taking up both market failures and ...
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How would a country successfully implement UBI?
Universal basic income is the principal that each citizen in a country gets a fixed amount of money from the government which should suffice for an individual to pay for at least his basic needs each ...
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Why do we optimize utility from X1 according to itself?
In lecturer's notes we have a utility function
$U_i = X_i^A * (1-L_i)^{1-a},$ $ 0< a< 1$, $ i = 1,2 $
$MP_1 = w_1 $
$MP_2 = w_2$
$X_1 + X_2 = w_1 * L_1 + w_2 * L_2$
And we need to form a ...
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What does the price-quantity diagram of a good with both negative production and consumption externalities look like?
The good in this case is coal, which I assume has both production and consumption externalities?
I haven't been able to find a price-quantity diagram on google so far depicting such a case, with ...
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What would be the issue if we approach inflation analysis without considering consumption bundles?
The CPI for use in calculating the rate of inflation is based off of Laspeyres' index, which is essentially the ratio of dot products of the price vector and a quantity vector. What kind of analysis ...
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Model the uncertain impact of a proposed policy by expected utility or other probabilistic approach
The impact of a proposed policy is often uncertain and subjected to randomness. As such, it seems natural to use probabilistic models. How to model the policy impact using the expected utility ...
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How to empirically measure the underlying utility function for a 'max EU" SWF? Stated/revealed preferences over uncertain lotteries, or?
Direct answers, as well as pointers to the best literature and textbook treatments, as well as the names of key researchers, are appreciated.
Suppose we are considering policies and transfers that ...
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How *should* weigh income/consumption at different income levels (esp. to the very poor vs poor) ... perhaps in a 'social welfare function'?
What is the best analysis/literature/text, that gives a theoretical justification for approaches that can be used in practice, for
How we should weight income/consumption at different income levels (...
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How *do* NGOs, think tanks, and governments weigh income/consumption tradeoffs/transfers at different income levels?
In considering policies and transfers, how do we (economists, NGOs, governments & think tanks) weigh income (consumption) tradeoffs between the poor & the very poor?
E.g., 'is giving 100 USD/...
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Is Hal Varian's intermediate microeconomic externality graph wrong?
Here is the capture from Hal Varian's Intermediate Microeconomics chapter Externality.
I remember clearly my lecturer said this graph is wrong several years ago, but I cannot remember the argument ...
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Pigouvian tax with general utility function
Suppose person a's consumption of good $y$ imposes a negative externality on person b. Person a's utility maximisation problem is
$$\max_{x_a,y_a} \ u_a(x_a,y_a),$$
subject to
$$p_x x_a+p_y y_a=e_a.$$
...
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What is the problem with this opportunity cost example?
The "stand-up economist" Yoram Bauman used the concept of opportunity cost to make the following joke:
[S]omebody offers you a choice between a Snickers bar and a package of M&Ms. ...
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Why the ageing population creates problems for a country to fund old-age social protection program and what solution do we have?
Senior citizens are considered as one of the vulnerable groups and therefore, they need some social protection during their old age. However, we also face the worldwide trend of an ageing population.
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Rawlsian SWF and Arrow Impossibilty Theorem
given Arrow impossibility theorem the only social welfare function that satisfies unrestricted domain, pareto and the independence of irrelevant alternatives is Dictatorship. However I was wondering ...
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Why isn't high inflation along with robust welfare a 'good' system?
High inflation, by definition, means that the demand for goods and services is higher compared to the demand for currency. In other words, people are more willing to give up currency for goods and ...
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Nested/Recursive Dynastic Utility Functions
I want to find a way of representing a dynastic utility function in which not only the head of the dynasty's utility is dependent on its descendants' utility, but all members of the family tree gain ...
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Microeconomics: first fundamental theorem of welfare
Can somebody tell me why part (2) of this proof is of any relevance?
(1) Assume that $x$ is Pareto-dominated by $y$. Since $x_i$ is optimal for consumer $i$:
if $y_i\succ x_i$ then $p\cdot y_i > p\...
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Is $(\mathbb{R}^m)^n$ the real coordinate space of dimension $m\cdot n$?
Very simple question here: say that there are n individuals and each individual $i\leq n$ has a consumption bundle $x_i\in \mathbb{R}^m$ (i.e. there are $m$ types of goods). Suppose that social ...
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Comparing 2 equilibrium values (competitive vs centralized): can I compare only 1st derivative of objective function?
I have a rather complex model where analytical solutions do not seem achievable (I also tried symbolic solving in Matlab and Python and could not find any) so that I cannot get an explicit expression ...
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Are means-tested or universal programs more effective at reducing the poverty rate?
Advocates of means-tested programs frequently argue that they will remove inefficiences in the system by directing a larger proportion of the program's budget to people with a genuine need. By ...
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How do you show welfare changes with limited entry versus perfect competition?
In Perloff's intermediate microeconomics book, he explains that producer surplus will increase with policies that limit entry. I get this intuitively - if we limit competition, producers will earn ...
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Deadweight Loss Due to Taxes Represented on a Graph of the Market?
Let's say a market is operating at equilibrium, with MSB=MSC, and a tax is imposed on the market. This would shift the supply curve to the left and cause a deadweight loss represented by the triangle ...
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Theory of and studies on the long-term effect of governmental redistribution
Proposition 28 from this 2000 survey (Fuller and Geide-stevenson 2010) of American economists shows that 49% of American Economics Association members agree, and 31% agree with provisions, that it is ...
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Is there a standard term for this tradeoff when subsidizing: inducing dependence vs providing support?
I've often heard it informally argued "people will become lazy if you give them handouts". Although I doubt the economic sophistication of most such assertions, I do think they have a real point: you ...
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Identify the Pareto welfare weights
I am asked to identify the Pareto welfare weights from the FOC of the following problem
$max_{{x_1}{x_2}} U_1(x_1)\ st\ u_2=U_2(x_2)\ and\ x_{1n}+x_{2n}=yn$
The Langrangian is: $L=U_1(x_1)+\lambda_1(...
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Is there any academic source that uses the following 'standard broad' definitions of externality?
According to answer to this question by KennyLJ., there exists the following definition of externality:
The simple, standard, and broad definition I favor is this:
A decision's effects are called ...
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Does consumer surplus over-weigh the interests of high-income consumers?
An individual's willingness to pay for a good not only depends on how much they value that good, but also on their income level (at least under the conventional non-economics definition of the word '...
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What percentage of economists recommend basic welfare like food stamps and temporary assistance for needy families?
Is it similar to minimum wage in that opinion is approximately split down party lines, seen in this 2006 survey: https://people.uwec.edu/jamelsem/fte/fte/efl/teacher_stuff/articles/economists_agree....
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Is the consumer surplus on a Giffen/Veblen good negative?
When drawing the demand and supply curves on a quantity/product space for an upwards sloping demand, assuming the two curves intersect, I noticed that the traditional consumer surplus region lies ...
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How can an outcome be Pareto efficient but not Kaldor-Hicks efficient?
An policy is a Pareto improvement if it makes some people better off and no one worse off. And a policy is a Kaldor-Hicks improvement if it can be turned into a Pareto improvement by redistributing ...
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Second welfare theorem problem
I would like to get a better understanding of part c of the following problem. It appears to me that Walrasian allocations do not change but I want to confirm whether I am right or not. Thanks.
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Do any social welfare functionals, other than maximin, meet all of Arrow's conditions plus invariance regarding ordinal level comparability?
In the literature on social welfare functionals, the only example I've seen of a functional which meets all of Arrow's conditions–––or at least utility analogues of Arrow's conditions–––plus ...
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What is the Walras law vs first welfare theorem
As far as I know, both of the first welfare theorem and the Walras law are closely tied to the invisible hand. what is the difference between them?
thank you very much for your help
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Does the 2nd welfare theorem involve government intervention? [closed]
How is the initial redistribution of resources carried out?
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Can consumer surplus be negative if a consumer is forced to make a purchase?
Assume there is a good that a producer sells for $100$. A consumer's willingness to pay for that good is $50$. However a government program forces consumers to purchase the good irrespective of their ...
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Calculating marginal tax rates when near a cliff
When using tax and transfer microsimulation models, a common approach for calculating marginal tax rates is to recalculate the tax liability when adding $1 to earnings. This will take into account ...
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What are general equilibrium effects?
I'm reading a lot on public finance and have been seeing a lot of mentions of measuring "general equilibrium effects".
I know what general equilibrium is, but I don't know what general ...
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Does immigration help to sustain welfare in rich European countries?
There is a lot of discussions about immigration and its effect on economies lately in Europe, so I'd like to ask a question. Is it true that immigration helps to sustain welfare in rich European ...
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Excessive entry without fixed costs
Mankiw & Whinston (1986) show that the market may contain too many firms. The intuition is that if a firm charges a suboptimal high price, a rival has a demand curve that is "too high" and can ...
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Universal Basic Income [closed]
In 2017 some countries have adopted the Universal Basic Income as an alternative to Welfare Payments, my question is, is it economically feasible by governments?
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What's the term for an economic policy that has negligible effect for most, but a significant effect for a few?
I remember this came up around tariffs in the US on aluminum. They have a negligible effect on the price of an aluminum can, but aggregated across all the aluminum cans sold, it can have a significant ...
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Do I understand the second welfare theorem correctly?
As far as I understand, the second welfare theorem says that all Pareto-optimal allocations can be reached by market equilibrium on free competitive markets.
Yet it seems that this understanding is ...
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Has the shrinking of the American household improved or diminished household welfare?
Over the last fifty years U.S. average household size has declined dramatically. When making within-year comparisons of household income, it is regarded as good practice to adjust for adult-equivalent ...
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Is the convexity of production sets necessary for the welfare theorems?
I have read that the convexity of production sets (for instance non-increasing returns to scale) is not a necessary assumption for the first welfare theorem but it is for the second welfare theorem. ...
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First Welfare theorem proof for local nonsatiation
I know that the First Welfare theorem holds for pure exchange economies for strict monotonicity of preferences, and logically it should also hold for local nonsatiation, but does anyone have a simple ...
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Understanding minimums in the calculation of Human Development Index
In the calculation of HDI, three indices are involved. One of them is the GNI index. In calculating this index, there's some scaling done. Quoting from the UNDP Technical notes
The low minimum ...
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