# Tag Info

16

I see the important lesson of the impossibility theorem as establishing that it is not generally speaking possible to have nicely behaved preferences of groups, even if individuals have nicely behaved preferences. Therefore a social welfare function may not exist . Attempts to improve aggregate welfare by maximizing the outcome of a preference aggregation ...

15

What you describe has not much to do with Arrow's impossibility theorem. This is called the Condorcet paradox. The preference profile you gave is used to demonstrate that even if all individual preferences are transitive group judgement may not be. Using majority voting y beats z, z beats x and x beats y. Arrow's impossibility theorem is a more nuanced ...

13

There is a temptation for economists to be utilitarians - to go around trying to maximise some measure (total, average, minimax as in Rawls ...) of utility. I think this happens even to economists who've never studied any moral or political philosophy because we often end up using welfare tests. It seems to me that Arrow is very useful (more useful than ...

8

Example. Each month, God gives Adam $60$ apples and Eve $40$ (for a total of $100$ apples). Let's write this allocation as $X=(60,40)$. The Devil now comes along and offers to increase their total monthly allotment of apples to $101$, but on the condition that the allocation must be $Y=(59,42)$. Observe: $X$ is Pareto efficient but not Kaldor-Hicks ...

6

This looks like a simple first order condition from constrained optimization. If the maximum is interior, i.e. if $t_i>0$, then the first derivative must be zero. If the maximum is on the boundary, i.e. if $t_i=0$, then the first derivative must be $\leq 0$. If it were $>0$, then we can't have an optimum, because then the value of $U$ could be raised ...

5

I will not discuss fairness (for example employers gains versus employees gains and bargaining power) principles as you did not ask about those. Is "crowding out" the right phrase here? Even if inflation lessens the effect of a minimal income there may still be an effect. Imagine that there are two people, $A$ with an income of 0 $B$ with an income of 60, ...

5

Here is an answer based on the following interpretation of the SWF : there is no "true" SWF, but SWFs are observable in principle, they simply represent the preferences of the policy decision maker. Under this interpretation, the policy recommendation are relevant despite depending on the specification of the SWF, precisely because different decision makers ...

5

You say that losses are reduced by investment, so we can write the (private) loss as a function of own investment and others' investment: $l^i(c^i,\mathbf{c}^{-i})$ with $l^i_1(c_i,,\mathbf{c}^{-i})<0$. Player $i$'s utility is $U^i(c^i,\mathbf{c}^{-i})=-f(l^i(c^i,\mathbf{c}^{-i}))-c^i$ and he invests until the first-order condition is satisfied: $$-f'[l^... 5 There are at least two other examples of SWFs that satisfy these conditions. The first is a positional dictatorship. Let N be the number of individuals (assume it is fixed). For any k between 1 and N, the kth positional dictatorship SWF orders social alternatives in terms of the preferences of the "kth best off" agent. Formally, given any social ... 4 John Rawls, in his book, A Theory of Justice, discusses the Maxi Min Principle, where he essentially says that societies can be compared based on how well they maximize the welfare of those with the lowest welfare (subject to caveats about certain basic human rights). If the typical welfare function is a weighted average of individual welfare U_i like:$$\...

4

An arbitrarily large ratio should occur with demand curve $P=\begin{cases} \frac{1}{Q} & \text{if } Q>1 \\ 2-Q & \text{if } Q\leq 1 \\ \end{cases}$. The monopolist prices at $P=1$, but the consumers' surplus if $P=0$ is infinite, because the area under the demand curve contains $\int_1^\infty \frac{1}{Q}dQ=\infty$.

4

When you say that a policy's objective is to "maximize well-being", presumably you mean "maximize collective well-being". And presumably, by "collective" well-being, you mean some sort of aggregate or average of the individual well-beings of all members of society. So your question breaks into two parts: What is the right measure of individual well-being? ...

3

Anonymous/impartial SWFs focus only on the pattern of well-being, and not the identities of the people who end up at particular well-being levels. Identities here simply means names. When applying an impartial SWF, one only looks at the profile of utilities, not who those utilities are associated with. Consider the following two cases: \begin{array}{ccc} ...

3

One can model anything, that's why it is a model. The real question is what the value of such a model would be. More to the point, I think this would be a very hard thing to do sensibly because how are we going to measure well-being? It encompasses way more factors than our economic models typically capture, such as social relations, health and mental state....

3

Consumer surplus is their willingness to pay minus the price they pay, and producer surplus is the price they receive minus their willingness to receive. So if you are assuming that consumers are forced to buy at a price of 100, yes the consumer surplus is negative. and according to your example, the producer surplus will be zero. You are right it does not ...

3

This is a very broad question and no one except the respondents in question know exactly what they believe and why. However, I suspect one important result in this context is the Second Welfare Theorem. In simple language and subject to some assumptions: The First Welfare Theorem tells us that any competitive equilibrium leads to a Pareto efficient ...

2

Pretty much by definition, "necessary" jobs have to be filled. Wages would have to be bid up so that the positions get filled. This implies some form of relative price shock, or inflation. If robots can do those taks, great, but the plausibility of that outcome is left as an exercise to the reader. The Universal Basic Income can be viewed as a rebranding of ...

2

What's going on when a for-profit company makes a threat? The same thing that is happening when does anything. It is trying to increase its profits, relative to what would happen if it didn't do the thing. In this case, it's trying to influence policy to protect its profits. It has decided that issuing the threat gives their profits a better chance than ...

2

If I understand you correctly, monopolistic deadweight loss persists without gov intervention because of the following: Economies of Scale: if monoplist is able to produce at below the market prices due to the presence of economies of scale, then the monoplist is effectively able to retain its dominance in the market as new firms entering the market cannot ...

2

The official rate is about 10, but the black market rate is about 1000. Also, yes, apparently the real exchange rate at the 1000 rate is pretty low, in the sense that one dollar buys a lot of local goods, (like boarding). Indeed, that's what it means, 10,000 dollars buys you 1,000,000 VB's, which pays for years and years of rent. The ratio in your numbers ...

2

One is Relative Utilitarianism (RU). Under the axioms below, society's preference can be represented by the simple sum of individuals' vNM utilities (each normalized to between $0$ and $1$). That is, every individual is given equal weight. Pareto Axiom. (This is just the usual: If everyone prefers lottery $p$ to $q$, then so too does society. And if ...

2

The owners of existing housing certainly benefit from increased demand and higher prices for their assets. The total benefit to society may be positive or negative, depending on whether current owners win more than current non-owners lose (from higher prices if they want to buy and become owners). Higher price of housing makes new buildings more profitable, ...

2

The amount of external cost is determined by the level of production in this framework. If the producers receive a subsidy the MPC shift to the right as you point out. That also means that for each level of cost production increases and therefore the external benefits are less, that is, they are internalizised. If the subsidy is enough the external ...

2

Your understanding is close, but not completely correct. Look at the picture below. Blue is the demand curve, Orange the marginal private costs (which in perfect competition is equal to supply). Should there be no taxation or externality the equilibrium price would be P1 and the equilibrium quantity Q1. If there is a production externality the social costs ...

2

The equilibrium network is smaller than that chosen by a social planner because agents do not internalize network externalities. Vaccination against a contagious disease is a standard such example. Someone who is not vaccinated exposes others to potential infection and prevents others from, say, using public facilities. This is a negative externality for ...

1

To calculate the socially optimal level of $e$, you should look at $\pi_W+\pi_H$ (presumably that's also how you come up with the socially optimal $x$). At $x=20$, $e=1$. The intuition is that the woodworker's production creates an externality of $-2a=-x$ on the hotel. Since the hotel has to right to ban noise pollution, the woodworker would have to ...

1

Arrow's Theorem concerns a social preference function ---that is, a function that produces a group preference order for every possible profile of individual preferences. The axioms "Nondictatorship", "Independence of Irrelevant Alternatives", etc. must then be satisfied by the function at every profile. (To be more precise, an axiom like IIA involves a ...

1

Neo-classical economists use the concept of utility as a proxy of well-being, and accept that every agent has a different set of preferences for their own utility, but all try to maximise one's own utility. Well-being at an individual level varies imensely and thus is rarely defined. At a macro level, it's generally agreed that the availability and quality ...

1

Using the 'utility monster' critique of aggregate utility maximization it is pretty easy to show that gen. comp. eq. does not always maximize aggregate utility. Imagine a pure exchange economy with two agents, $A$ and $B$ and two types of goods, $x_1$ and $x_2$. Agent $A$ has nothing whereas agent $B$ has one unit of each good. The agents respective utility ...

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