Economics
Welfare Effects
Welfare effects refer to the changes in overall well-being that result from a particular economic action or policy. These effects can be measured in terms of consumer surplus, producer surplus, and total surplus. Positive welfare effects indicate an increase in overall well-being, while negative welfare effects signify a decrease.
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9 Key excerpts on "Welfare Effects"
- Caroline L. Dinwiddy, Francis J. Teal(Authors)
- 1996(Publication Date)
- Cambridge University Press(Publisher)
Methods of constructing such a framework constitute the subject matter of welfare economics, and some knowledge of welfare economics is an essential prerequisite for the study of cost-benefit analysis. Welfare economics is one of the most interesting areas of economic theory, but it is one that raises exceptionally difficult problems at both the conceptual and the practical level. What is 'welfare', and how can we measure it? A new economic policy will typically affect the incomes of many individuals and the prices they face: how do these changes in prices and incomes translate into changes in welfare? Is it a relevant consideration that some households affected by public sector intervention are wealthy, while others are poor? Part I of this book responds to these questions by providing an introduction to the theory of welfare economics. We start in this chapter with an informal approach to the measurement of welfare change based on the concepts of consumer and producer surplus. 1.1 Consumer and producer surplus It was suggested above that the activities of the public sector affect individuals by changing the prices they face and the incomes they receive. Some of these effects can be analysed in a partial equilibrium context, and the examples of this chapter are all illustrated by supply-and-demand diagrams representing a single competitive market. The usual market clearing assumptions are made: given a downward sloping demand curve and an upward sloping supply curve, it is assumed that an equilibrium price will emerge at which the quantity demanded will just equal the quantity supplied. If either the demand or the supply curve shifts, it is assumed that a new equilibrium will be found with either prices or quantities, or both, Measuring changes in economic welfare P (b) (a) Figure 1.1 Consumer surplus a Total consumer surplus b Change in consumer surplus adjusting to the new situation.
eBook - PDFWelfare Theory, Public Action, and Ethical Values
Revisiting the History of Welfare Economics
- Roger E. Backhouse, Antoinette Baujard, Tamotsu Nishizawa(Authors)
- 2021(Publication Date)
- Cambridge University Press(Publisher)
Introduction: Revisiting the History of Welfare Economics Roger E. Backhouse, Antoinette Baujard and Tamotsu Nishizawa 1 Welfare Economics Welfare economics is the part of economics that deals with evaluating states of the world and formulating recommendations for policies that would improve the well-being of society as a whole. It covers not only a body of policy advice but, arguably more important, a body of principles on which such evaluations and recommendations should be based. Economists frequently make the claim that how well-off society is, which we refer to as social welfare, depends solely on the well-being of the individuals making up that society. In other words, if a change does not make any individual better off, then social welfare cannot have increased. The claim made in this book is that whether we are talking about old, new or contemporary welfare economics, when economists have tackled prac- tical problems, they have adopted a much broader range of ethical judge- ments beyond welfarism. For example, they have seen greater equality in the distribution as desirable in itself; they have argued that we should respect the rights of individuals to do certain things; and they have attached importance to the way economic outcomes are achieved. The notion that social welfare depends solely on the well-being, or welfare, of individuals has come to be known as ‘welfarism’. The term ‘welfarism’ appears to have first been used by John Hicks (1959), when he defined it as meaning a concern with ‘economic welfare’, a term used by A. C. Pigou (1920: 11) to denote ‘that part of welfare that can be brought directly or indirectly into relation with the measuring-rod of money’. This excluded considerations such as justice, freedom and rights to which money values could not be assigned. However, the term was not widely used until it was independently invented by Amartya Sen in the late 1970s, 1
- Daniel Feenberg(Author)
- 2012(Publication Date)
- Academic Press(Publisher)
2 Welfare Economics and the Basis of Benefit Measurement 1. The Nature of Welfare Economics During the two centuries economics has existed as a distinguishable sci-ence, economists have developed a remarkable body of welfare analysis. The purpose of this chapter is to briefly summarize important results of welfare economics and to show how environmental problems fit into the framework. For a fuller discussion of welfare economics, the reader should consult a good price-theory text, such as Mansfield [30]. Welfare economics is concerned with the relationship between people's welfare and the ways the productive resources available to society are used. It is usual and useful to distinguish between efficiency and equity aspects of welfare economics. Efficiency refers to the ability of the eco-nomic system to satisfy people's needs and wants, given the distribution of property and other productive resources among the people. Equity refers to concerns people have about the distributions of wealth and in-come and to government programs designed to alter these distributions. Almost nothing will be said about equity problems in this book. The reason is not that equity problems are unimportant; in an affluent society they may be even more important than efficiency problems. Instead, the reason is that society has available several mechanisms—specifically tax and transfer programs—that can be well designed to achieve changes deemed desirable in wealth and income distributions. In fact, available evidence and analysis (see Baumol and Oates [2]) suggest that most actual and proposed government environmental protection programs are likely to be mildly regressive. If so, desirable corrections to wealth and income distributions should be made by tax and transfer programs designed for the purpose. Environmental protection programs are poor measures by 19 20 Welfare Economics and the Basis of Benefit Measurement which to achieve distributional goals.
eBook - PDFEconomic Analysis in Historical Perspective
Butterworths Advanced Economics Texts
- J. Creedy, D.P. O'Brien(Authors)
- 2014(Publication Date)
- Butterworth-Heinemann(Publisher)
Subsequent approaches to the welfare calculus have tended to admit interpersonal comparisons of utility on ethical grounds, which takes the whole matter somewhat beyond the limits of economics. It is usually at this juncture that theories of justice impinge on the economics of welfare. In his recent theory ofjustice, for example, John Rawls (1971) contends that public policy should be evaluated by the welfare of the most miserable person in society. In Rawls' theory, making this person better off, even though others are made worse off, is socially desirable. His method, of course, requires comparing the levels of utility of different people in different circumstances, a baldly ethical manoeuvre. Nozick (1974), in a widely acclaimed rebuttal Modern issues in welfare economics 71 Rawls, rejected the Rawlsian value judgement in favour of an entitlement theory—an idea more congenial to those who support the individualistic (e.g. Paretian) approach to welfare economics. Although widespread disagreement on the concept of the social welfare function persists, Arnold Harberger (1971) recently attempted to recast the idea in the mould of positive economics. Harberger pleaded for the acceptance of a 'conventional framework' for all applied welfare analysis. Practically speaking, this means general acceptance of the following basic postulates: (1) The competitive demand price for a given unit measures the value of that unit to the demander; (2) The competitive supply price for a given unit measures the value of the unit to the supplier; (3) When evaluating the net benefits or costs of a given action (project, programme or policy), the costs and benefits accruing to each member of the relevant group (e.g. a nation) should normally be added without regard to the individual(s) to whom they accrue. Harberger points out that these postulates underlie most analyses that use the concepts of consumer and producer surplus, either in a partial equilibrium or a Paretian framework.
eBook - PDF- Sidney Weintraub(Author)
- 2016(Publication Date)
22 Welfare Economics: Or, When is a Change an Improvement? MORGAN REYNOLDS AND EUGENE SMOLENSKY Introduction What constitutes the good, the just, or the desirable? Although we associate the formal pursuit of these ethical questions with philoso-phy, economists too have traditionally been concerned with these issues, asking whether one economic system, or situation within the system, is better than another. Welfare economics is the branch of economics concerned with the development of ethical criteria by which we can decide what is desirable and what ought to be. Welfare economics ultimately depends upon individual values whose truth or falsity cannot be established conclusively, although logic and empiri-cal knowledge may develop relevant ethical criteria so that a resona-ble consensus about what is desirable is not necessarily out of reach. Generally, welfare economics has realized primarily negative con-clusions: economists have not derived undisputable rules for deciding which results are desirable and which are not. Yet there is nothing surprising about this lack of concord. An obvious way to comprehend the failure is to hark back to a popular elementary definition of eco-nomics, namely, that economics is the study of the allocation of lim-447 4 4 8 MORGAN REYNOLDS AND EUGENE SMOLENSKY ited means of satisfying unlimited human wants. The inescapable fact of scarcity—never enough to fulfill all demands—implies a conflict among people as they each act out their urge for more, compelling tension between what they have and what they want. The concept of scarcity illuminates individual behaviors as divergent as murder, nursing a sick child back to health, or raising the price of grapefruit; it also provides a clue as to why any set of values will probably not command universal agreement. But negative and nonconsensual con-clusions are not necessarily less important than positive ones.
eBook - PDF- Luther Tweeten(Author)
- 2019(Publication Date)
- CRC Press(Publisher)
7. Finally, classical welfare economics primarily relates to static economic efficiency and current income rather than to long-term efficiency and economic growth which requires savings and investment in high-retum durable capital. Net social benefit may be consumed today or invested to produce future social benefits. If net social benefit is consumed today, it provides satisfaction today. If it is saved and invested, it provides a flow of future output benefiting later generations. The later w ill be apparent in dynamic efficiency. Dynamic efficiency can best be measured by trends in resource productivity or in national income. Historical data indicate that countries with the least amount of government interventions distorting markets (lowest net social cost) have had the fastest rates of economic growth (Agarwala, 1983). N e t B e n e f it s a n d R e d is t r ib u t io n s f r o m P u b l ic in t e r v e n t io n s I mp r o v in g t h e E c o n o m y Individuals pursuing self-interests without a coordinating framework would not necessarily increase well-being of society. Some coordinating system is essential, either the private market sector or the public sector. The latter includes the family and all other non-market allocators but here refers mainly to allocations by government. Classical welfare analysis can help to identify situations of madcet failure or public sector failure which reduce net social benefits. Figure 2.5 is used to illustrate market failure — where Public Welfare and Economic Science 53 FIGURE 2.5. Redistributions and Costs of Market Failure 54 Farm Policy Analysis markets alone do not minimize social cost and where the public sector potentially can intervene to increase well-being. 1 . Externalities. Panel A in Figure 2.5 shows the impact of disassociation of private and social costs — an externality such as costs incurred by downstream farmers when an upstream farmer allows high rates of soil erosion.
eBook - ePubGlobal Trade Policy
Questions and Answers
- Pamela J. Smith(Author)
- 2013(Publication Date)
- Wiley-Blackwell(Publisher)
Intuitively, the effects of export subsidies on prices and quantities provide information about their impact on both producers and consumers. At home, producers are supplying more at a higher price. They have gained from the subsidy in terms of revenue from sales of the good. At home, consumers are demanding less at a higher price. They have lost from the subsidy in terms of the cost of the good. Alternatively, in the foreign country, producers are supplying less at a lower price. They have lost. And foreign consumers are demanding more at a lower price. They have gained. Further, the mix of production for the domestic and international markets changes as a result of the export subsidy. Producers in the home country now produce more for the export market and less for the domestic market. Producers in the foreign market continue to produce goods only for their domestic market, but fewer of them.The Welfare Effects of the export subsidy for the home and foreign countries can also be seen in Figure 6.1 and are summarized in Table 6.1 . Instead of illustrating total welfare before and after the subsidy is imposed, we simply illustrate the changes in welfare that result from the subsidy. Panel (a) in Figure 6.1 shows the Welfare Effects for the home country (exporter). As shown, the producer's welfare increases by the surplus amount +(a + b + c) as a result of the subsidy. The consumer's welfare decreases by the surplus amount −(a + b) as a result of the subsidy. Furthermore, the government welfare decreases by the amount −(b + c + d + e + f + g + h + i) as a result of the subsidy. This change in government welfare is the cost of paying the subsidy. It is the product of the quantity exported (horizontally) and the value of the subsidy (vertically).Table 6.1Welfare Effects of exports subsidies.Case 1 – Large country Economic agent Welfare Effects (exporter/home) Welfare Effects (importer/foreign) Producer +(a + b + c) −(a* + e*) Consumer −(a + b) +(a* + b* + c* + d* + e*) Government +(b + c + d + e + f + g + h + i) 0 Country −(b + d + e + f + g + h + i) +(b* + c* + d*) Country (direction) Negative Positive Case 2 – Small country Economic agent Welfare Effects (exporter/home) Welfare Effects (importer/foreign) 
eBook - PDF- John Gowdy(Author)
- 2020(Publication Date)
- CRC Press(Publisher)
More is better while qualitative differences are ignored. The limits to this notion of welfare are becoming increasingly evident. No one would deny that basic material needs must be met in order to achieve some minimal socially acceptable level of welfare. But food, clothing, shelter, or even cars and VCRs are not all that determines our well-being as individuals or as a society. A recent survey conducted in Japan, the country celebrated for its miraculous achievements in economic efficiency and growth, speaks to the problem of adequate welfare measures. In a broad-based survey, the Japanese were asked to choose the two most important social changes from a list of ten. Of the 68 percent who responded, 53 percent thought Japan had transformed itself from a poor into a rich nation, and 46 percent said Japan was no longer thrifty. However, fewer than 3 percent of the respondents thought Japan had become a happier nation. Our well-being is affected by social structures and support systems like families, neighborhoods, and social context, by the well-being or suffering of others, by the quality of our natural environment affecting our ability to use rivers for swimming, parks for walking, and streets or backyards safely for children’s play, and by the material things available to us. The costs of social and environmental change may be qualitative, as in lost comfort levels or increased stress, but they may also be quantifiable, as in in-creased health care or security needs. What does all this mean for our simple example of Brazil nuts and beef (two goods), and capital and labor (two inputs)? If more people can be fed by producing Brazil nuts than beef, the two cannot be simply equated as generating comparable utility levels since the social Welfare Effects of the consumptions of these two goods are very different. Likewise, if the same number of calories can be produced from Brazil nuts instead of beef with less land Copyright © 1995 St. Lucie Press
eBook - PDF- John Morgan(Author)
- 2019(Publication Date)
- University of Toronto Press(Publisher)
The eight propositions that have been derived from an analysis of the welfare foundations in economic thought really reduce them selves to three broad conclusions. First, the welfare of the individual, the group and the community--define d in any sense-looked at from the economic point of view, requires that the available re- Welfare in Economic Thought 113 sources should be efficiently distributed between various competing uses. Here what is required is forethought, skil l, and knowledge, in the allocation of resourc es, so that the individual, the group and the community are in the most favoured position. Second, the welfare of the various parties that we have had under examination requires that the optimum be reached by making ev ery effort possible to increase the resources available. This was the main preoccupation of the founding fathers of economic science. They saw the optimum as the resultant of a continual struggle between nature and man, nature with its apparent limits and man with his unlimited possib il ities. In the modern technological era, with the assurance that ther e is no long-term limitation to resources and their use, we are simply going back to this second condition for the optimum-that of bending al l our efforts, in ev ery possible manner, to increase availab le resourc es. 9 The third broad conclusion sug gest ed is that the optimum requires a progressiv e improvement in the distribution of goods and servic es as betwe en different sectors of society, so that distribution betw een individuals, groups, and classes, within a community, moves in favour of the poorer and less favoured section, without jeopardizing the efficiency of al location of resources, which it need not do, and without diminishing the total resourc es, the aggre gate volume of production, which it should not do. Welfar e considerations, as pointed out at the outset, constitute the yardstick by which these conclusions are se en to be in need of further reinforc ement.
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