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Applied Welfare Economics


  • Jones, Chris

    (Senior Lecturer, The Australian National University)


Applied Welfare Economics uses important results in the welfare economics literature to extend a conventional Harberger cost-benefit analysis. After reviewing the properties of different welfare measures a conventional welfare equation is used to evaluate marginal policy changes in a general equilibrium economy with tax distortions. The analysis is extended to accommodate trade and income taxes, time, internationally traded goods, and non-tax distortions, including externalities, non-competitive behaviour, public goods and price quantity controls. The welfare analysis is developed in stages, and where possible is explained using diagrams, to make it more adaptable to the different institutional arrangements encountered in applied work. With this in mind, computable welfare expressions are solved using demand and supply elasticities for each good. The lump-sum transfers used in a conventional analysis to separate welfare effects are carefully examined to identify the role of the marginal social cost of public funds (MCF) in policy evaluation. The main contribution in the book is to separate income effects for marginal policy changes in the shadow value of government revenue, which converts efficiency effects into dollar changes in private surplus. It is a scaling coefficient that makes income effects irrelevant in single (aggregated) consumer economies, and conveniently isolates distributional effects in heterogeneous consumer economies. The decomposition is used to test for Pareto improvements, and to examine the separate but related roles of the shadow value of government revenue and the MCF in applied work.

Suggested Citation

  • Jones, Chris, 2005. "Applied Welfare Economics," OUP Catalogue, Oxford University Press, number 9780199281978.
  • Handle: RePEc:oxp:obooks:9780199281978

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    Cited by:

    1. Scott Farrow & W. Kip Viscusi, 2013. "Towards principles and standards for the benefit–cost analysis of safety," Chapters, in: Scott O. Farrow & Richard Zerbe, Jr. (ed.), Principles and Standards for Benefit–Cost Analysis, chapter 5, pages 172-193, Edward Elgar Publishing.
    2. Sussman Fran & Weaver Christopher P. & Grambsch Anne, 2014. "Challenges in applying the paradigm of welfare economics to climate change," Journal of Benefit-Cost Analysis, De Gruyter, vol. 5(3), pages 347-376, December.
    3. James E. Anderson & Will Martin, 2011. "Costs of Taxation and Benefits of Public Goods with Multiple Taxes and Goods," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 13(2), pages 289-309, April.
    4. Kellermann, Kersten, 2007. "Fiscal competition and a potential growth effect of centralization," KOFL Working Papers 4, Konjunkturforschungsstelle Liechtenstein (KOFL), Vaduz.
    5. Will Martin & James E. Anderson, 2005. "Costs of Taxation and the Benefits of Public Goods: The Role of Income Effects," Boston College Working Papers in Economics 617, Boston College Department of Economics.
    6. Karanfil, Fatih & Pierru, Axel, 2021. "The opportunity cost of domestic oil consumption for an oil exporter: Illustration for Saudi Arabia," Energy Economics, Elsevier, vol. 96(C).
    7. Burgess, David F., 2013. "Reconciling alternative views about the appropriate social discount rate," Journal of Public Economics, Elsevier, vol. 97(C), pages 9-17.
    8. Chris Jones, 2005. "Why the Marginal Social Cost of Funds is not the Shadow Value of Government Revenue," ANU Working Papers in Economics and Econometrics 2005-449, Australian National University, College of Business and Economics, School of Economics.
    9. Demirci, Ece Zeliha & Erkip, Nesim K., 2017. "Designing an intervention strategy for public-interest goods: The California electric vehicle market case," Omega, Elsevier, vol. 69(C), pages 53-69.

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