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Welfare from a benefit viewpoint (*)

Author

Listed:
  • David G. Luenberger

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

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.

Suggested Citation

  • David G. Luenberger, 1996. "Welfare from a benefit viewpoint (*)," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 7(3), pages 445-462.
  • 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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    Citations

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    Cited by:

    1. Jean-Paul Chavas & Walter Briec, 2012. "On economic efficiency under non-convexity," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 50(3), pages 671-701, August.
    2. 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.
    3. Walter Briec & Kristiaan Kerstens & Jean Baptiste Lesourd, 2001. "Single Period Markowitz Portfolio Selection, Performance Gading and Duality: A Variation on Luenberger'a Shortage Function," Working Papers 0203, Departament Empresa, Universitat Autònoma de Barcelona, revised Apr 2002.
    4. Raphaël Giraud, 2012. "Money matters: an axiomatic theory of the endowment effect," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 50(2), pages 303-339, June.
    5. Francesco Andreoli & Alessandra Michelangeli, 2014. "Welfare Measures to Assess Urban Quality of Life," Working Papers 278, University of Milano-Bicocca, Department of Economics, revised Jun 2014.
    6. 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.
    7. Walter Briec & Laurent Cavaignac, 2009. "An extension of the multi-output state-contingent production model," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 39(1), pages 43-64, April.
    8. Esso-hanam Atake, 2015. "Technical efficiency of public hospitals in Togo: A directional distance function approach," Economics Bulletin, AccessEcon, vol. 35(3), pages 1752-1764.
    9. 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 Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics].
    10. Shr, Yau-Huo & Zipp, Katherine, 2016. "Valuing complementarity between environmental goods and housing attributes with the benefit function: An application to flood hazards," 2016 Annual Meeting, July 31-August 2, 2016, Boston, Massachusetts 235961, Agricultural and Applied Economics Association.
    11. Andreas Mayer & Valentin Zelenyuk, 2018. "Aggregation of Individual Efficiency Measures and Productivity Indices," CEPA Working Papers Series WP012018, School of Economics, University of Queensland, Australia.
    12. repec:eee:matsoc:v:91:y:2018:i:c:p:25-35 is not listed on IDEAS
    13. Jean-Pascal Guironnet & Nicolas Peypoch, 2005. "Human Capital Allocation and Overeducation: A Measure of French Productivity," Working Papers 05-10, LAMETA, Universitiy of Montpellier, revised Oct 2005.
    14. Jean-Paul Chavas & Michele Baggio, 2010. "On duality and the benefit function," Journal of Economics, Springer, vol. 99(2), pages 173-184, March.
    15. Briec, Walter & Mussard, Stéphane, 2014. "Efficient firm groups: Allocative efficiency in cooperative games," European Journal of Operational Research, Elsevier, vol. 239(1), pages 286-296.
    16. repec:spr:joptap:v:120:y:2004:i:1:d:10.1023_b:jota.0000012730.36740.bb is not listed on IDEAS
    17. Dubrocard, Anne & Prombo, Michel, 2012. "Performance environnementale et mesure de la productivité," MPRA Paper 41456, University Library of Munich, Germany.
    18. 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.
    19. repec:kap:jproda:v:48:y:2017:i:2:d:10.1007_s11123-017-0513-7 is not listed on IDEAS
    20. 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.
    21. repec:eee:jfpoli:v:69:y:2017:i:c:p:58-67 is not listed on IDEAS

    More about this item

    JEL classification:

    • D00 - Microeconomics - - General - - - General
    • D60 - Microeconomics - - Welfare Economics - - - General

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