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An Efficiency Approach to the Evaluation of Policy Changes

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  • Stephen Coate

Abstract

This paper describes an efficiency approach to the evaluation of policy changes. Rather than comparing the utility allocations that arise before and after a policy change is introduced, this approach evaluates a policy change by comparing it with other possible changes which might be made from the status quo. The main merit of the approach is that it is founded on the Pareto criterion rather than on a distributional value judgement. The paper provides a precise statement of the approach and applies it to a number of examples. Some objections to the approach are also anticipated and discussed.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 7316.

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Date of creation: Aug 1999
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Publication status: published as Coate, Stephen, 2000. "An Efficiency Approach to the Evaluation of Policy Changes," Economic Journal, Royal Economic Society, vol. 110(463), pages 437-55, April.
Handle: RePEc:nbr:nberwo:7316

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  1. Boadway, Robin W, 1974. "The Welfare Foundations of Cost-Benefit Analysis," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 84(336), pages 926-39, December.
  2. Guesnerie, Roger & Roberts, Kevin, 1987. "Minimum wage legislation as a second best policy," European Economic Review, Elsevier, vol. 31(1-2), pages 490-498.
  3. Tim Besley & Stephen Coate, . ""An Economic Model of Representative Democracy''," CARESS Working Papres, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences 95-02, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
  4. Guesnerie, Roger & Roberts, Kevin, 1984. "Effective Policy Tools and Quantity Controls," Econometrica, Econometric Society, Econometric Society, vol. 52(1), pages 59-86, January.
  5. Robin Boadway & Katherine Cuff, 1999. "A Minimum Wage Can Be Welfare-Improving and Employment-Enhancing," Cahiers de recherche CREFE / CREFE Working Papers, CREFE, Université du Québec à Montréal 72, CREFE, Université du Québec à Montréal.
  6. Harris, Richard G., 1979. "Efficient commodity taxation," Journal of Public Economics, Elsevier, vol. 12(1), pages 27-39, August.
  7. Peter A. Diamond & J. A. Mirrlees, 1968. "Optimal Taxation and Public Production," Working papers 22, Massachusetts Institute of Technology (MIT), Department of Economics.
  8. Dexit, A. & Grossman, G.M. & Helpman, E., 1996. "Common Agency and Coordination: General Theory and Application to Tax Policy," Papers, Tel Aviv 11-96, Tel Aviv.
  9. Robin Boadway & Michael Keen, 1991. "Public Goods, Self-Selection and Optimal Income Taxation," Working Papers 828, Queen's University, Department of Economics.
  10. Dasgupta, Partha & Stiglitz, Joseph E, 1972. "On Optimal Taxation and Public Production," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 39(1), pages 87-103, January.
  11. Bullock, David S, 1995. "Are Government Transfers Efficient? An Alternative Test of the Efficient Redistribution Hypothesis," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 103(6), pages 1236-74, December.
  12. Weymark, John A., 1981. "Undominated directions of tax reform," Journal of Public Economics, Elsevier, vol. 16(3), pages 343-369, December.
  13. Harberger, Arnold C, 1978. "On the Use of Distributional Weights in Social Cost-Benefit Analysis," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 86(2), pages S87-120, April.
  14. Dixit, Avinash & Norman, Victor, 1986. "Gains from trade without lump-sum compensation," Journal of International Economics, Elsevier, vol. 21(1-2), pages 111-122, August.
  15. Dreze, Jean & Stern, Nicholas, 1987. "The theory of cost-benefit analysis," Handbook of Public Economics, Elsevier, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 2, chapter 14, pages 909-989 Elsevier.
  16. Mirrlees, James A, 1972. "On Producer Taxation," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 39(1), pages 105-11, January.
  17. Charles Blackorby & David Donaldson, 1990. "A Review Article: The Case against the Use of the Sum of Compensating Variations in Cost-Benefit Analysis," Canadian Journal of Economics, Canadian Economics Association, vol. 23(3), pages 471-94, August.
  18. Allen, Stephen P, 1987. "Taxes, Redistribution, and the Minimum Wage: A Theoretical Analysis," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 102(3), pages 477-89, August.
  19. Coate, Stephen & Morris, Stephen, 1995. "On the Form of Transfers in Special Interests," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 103(6), pages 1210-35, December.
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Cited by:
  1. Jean-François, MERTENS & Anna, RUBINCHIK, 2008. "Intergenerational equity and the discount rate for cost-benefit analysis," Discussion Papers (ECON - Département des Sciences Economiques), Université catholique de Louvain, Département des Sciences Economiques 2008047, Université catholique de Louvain, Département des Sciences Economiques.
  2. Daniel Bromley, 2004. "Reconsidering Environmental Policy: Prescriptive Consequentialism and Volitional Pragmatism," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 28(1), pages 73-99, May.
  3. Callan, Tim & Keeney, Mary J. & Nolan, Brian & Walsh, John R., 2001. "Reforming Tax and Welfare," Research Series, Economic and Social Research Institute (ESRI), Economic and Social Research Institute (ESRI), number PRS42.
  4. Stanley L. Winer & Walter Hettich, 2002. "The Political Economy of Taxation: Positive and Normative Analysis when Collective Choice Matters," Carleton Economic Papers 02-11, Carleton University, Department of Economics, revised 2004.
  5. John M. Gowdy, 2004. "Toward a New Welfare Foundation for Sustainability," Rensselaer Working Papers in Economics, Rensselaer Polytechnic Institute, Department of Economics 0401, Rensselaer Polytechnic Institute, Department of Economics.
  6. Robin Boadway, 2010. "Efficiency and Redistribution: An Evaluative Review of Louis Kaplow's The Theory of Taxation and Public Economics," Journal of Economic Literature, American Economic Association, vol. 48(4), pages 964-79, December.
  7. Gowdy, John, 2005. "Toward a new welfare economics for sustainability," Ecological Economics, Elsevier, vol. 53(2), pages 211-222, April.

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