Welfare Measurement Under Habit Forming Tastes
AbstractThis paper examines the implications of habit forming hypothesis for welfare theory. both myopic and rational habit forming models are discussed. First, I analyse the main criteria proposed by myopic habit forming models for measuring individual and social welfare. I show that they are undermined by the same sort of problem: the need of information that cannot inferred from individuals' behaviour. Then I analyse rational habit-forming models. I show that to regain the traditional correspondence between preference-choice-welfare these models need to refer to a cardinal concept of utility. I also show that Harsanyi's correspondence rule for welfare measurements can use an ordinal concept of utility only because the author does not take into account all the consequences deriving from habit-forming hypothesis
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Bibliographic InfoPaper provided by School of Economics, University of East Anglia, Norwich, UK. in its series University of East Anglia Discussion Papers in Economics with number 9703.
Length: 27 pages
Date of creation: 1997
Date of revision:
Postal: Helen Chapman, School of Economics, University of East Anglia, Norwich Research Park, Norwich, NR4 7TJ, UK
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