Welfare Equivalent NNP and Habit Formation
This note concerns the importance of habit formation for social accounting. With internal habit formation, earlier procedures for welfare measurement in the first best apply with minor modifications. This result strengthens the idea behind using the comprehensive net national product as a welfare indicator. If, on the other hand, part of the habit formation is exogenous to each consumer, the exact welfare measure will also reflect the associated external effect.
|Date of creation:||10 Apr 2006|
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