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Welfare from a benefit viewpoint (*)

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  • David G. Luenberger

    (Department of Engineering-Economic Systems, Stanford University, Standford, CA 94305-4025, USA)

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    Abstract

    Individual welfare is most naturally measured in terms of individual utility but this has the well-known disadvantage that utility levels of different consumers cannot be meaningfully compared. This difficulty is traditionally avoided by using various willingness-to-pay measures, such as compensating and equivalent variation. These measures are based on price changes. This paper develops alternative welfare measures using willingness-to-trade concepts as originally proposed by Dupuit (1844). These measures are based directly on commodity bundle changes. These welfare measures can be represented as integrals under certain inverse demand functions. An important property of the proposed welfare measures studied here is that they can be meaningfully aggregated to form overall welfare measures. These measures in turn directly quantify a compensation criterion. It is shown that competitive prices provide a first-order approximation to the welfare measures. Furthermore a second-order approximation can be found by forming a suitable aggregation of the individual second-order effects. Finally, it is shown that the representations for consumer welfare as integrals under inverse demand curves can be extended to the aggregate measures as well. This then provides a complete complement to traditional measures based on price changes.

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    Bibliographic Info

    Article provided by Springer in its journal Economic Theory.

    Volume (Year): 7 (1996)
    Issue (Month): 3 ()
    Pages: 445-462

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    Handle: RePEc:spr:joecth:v:7:y:1996:i:3:p:445-462

    Note: Received: June 3, 1993; revised version March 3, 1995
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    Web page: http://link.springer.de/link/service/journals/00199/index.htm

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    Cited by:
    1. Guironnet, J.-P. & Peypoch, N., 2007. "Human capital allocation and overeducation: A measure of French productivity (1987, 1999)," Economic Modelling, Elsevier, vol. 24(3), pages 398-410, May.
    2. Mauricio Benegas & Emerson Marinho, 2008. "Duality, Net Supply, and The Directional Distance Function," Anais do XXXVI Encontro Nacional de Economia [Proceedings of the 36th Brazilian Economics Meeting] 200807211656140, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
    3. Raphaël Giraud, 2012. "Money matters: an axiomatic theory of the endowment effect," Economic Theory, Springer, vol. 50(2), pages 303-339, June.
    4. Briec, Walter & Dumas, Audrey & Stenger, Agathe, 2013. "On the standard achievement and well-being indexes and their relation to the Hicks–Moorsteen productivity index," Economic Modelling, Elsevier, vol. 35(C), pages 900-909.
    5. Walter Briec & Laurent Cavaignac, 2009. "An extension of the multi-output state-contingent production model," Economic Theory, Springer, vol. 39(1), pages 43-64, April.
    6. Jean-Pascal Guironnet & Nicolas Peypoch, 2005. "Human Capital Allocation and Overeducation: A Measure of French Productivity," Working Papers 05-10, LAMETA, Universtiy of Montpellier, revised Oct 2005.
    7. Walter Briec & Qi Liang & Hermann Ratsimbanierana, 2012. "On some classes of normed and risk averse preferences," Journal of Economics, Springer, vol. 106(3), pages 267-282, July.
    8. Jean-Paul Chavas & Michele Baggio, 2010. "On duality and the benefit function," Journal of Economics, Springer, vol. 99(2), pages 173-184, March.
    9. Chavas, Jean-Paul, 2013. "On Demand Analysis and Dynamics: A Benefit Function Approach," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 149683, Agricultural and Applied Economics Association.
    10. Jean-Paul Chavas & Walter Briec, 2012. "On economic efficiency under non-convexity," Economic Theory, Springer, vol. 50(3), pages 671-701, August.
    11. Dubrocard, Anne & Prombo, Michel, 2012. "Performance environnementale et mesure de la productivité," MPRA Paper 41456, University Library of Munich, Germany.

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