Welfare Economics And Social Choice Theory

by Feldman, Allan M.; Serrano, Roberto

• ISBN13: 9780387293677
• ISBN10: 0387293671
• Edition: 2nd
• Format: Hardcover
• Copyright: 2005-11-01
• Publisher: Springer Verlag

Summary

Welfare economics, and social choice theory, are disciplines that blend economics, ethics, political science, and mathematics.Topics in Welfare Economics and Social Choice Theory, 2nd Edition, include models of economic exchange and production, uncertainty, optimality, public goods, social improvement criteria, life and death choices, majority voting, Arrow's theorem, and theories of implementation and mechanism design.Our goal is to make value judgments about economic and political mechanisms: For instance, does the competitive market produce distributions of products and services that are good or bad for society? Does majority voting produce good or bad outcomes? How can we design tax mechanisms that result in efficient amounts of public goods being produced? We have attempted, in this book, to minimize mathematical obstacles, and to make this field accessible to undergraduate and graduate students and the interested non-expert.

Author Biography

Allan M. Feldman has taught economics at Brown University for 34 years. He has written and published articles in the areas of general equilibrium theory, fairness and equity, Arrow's theorem, strategy-proofness, majority voting theory, compensation criteria, the value of life, and law and economics. He has taught thousands of Brown undergraduates in a wide variety of courses, and has served for many years as the director of undergraduate studies in economics at Brown. He has also worked as an economics consultant in litigation. Roberto Serrano is a Professor of Economics at Brown University, where he has worked since 1992 when he got his PhD from Harvard University. His fields of research are economic theory and game theory. He has been an Associate Editor of several journals, including Economic Theory, Mathematical Social Sciences and Research in Economics. He has published over thirty articles in refereed journals, and his research has been supported through fellowships and awards from prestigious institutions, including The Sloan Foundation, the U.S.-Israel Binational Science Foundation, the U.S. National Science Foundation and Spain's Fundacion Banco Herrero.

Table of Contents

Preface	xi
Introduction	1	(216)
1 The Concerns of Welfare Economics	1	(3)
2 The Concerns of Social Choice Theory	4	(3)
3 Practical Concerns of Welfare Economics and Social Choice Theory	7	(4)
1. PREFERENCES AND UTILITY	11	(22)
1 Fundament al Assumptions	11	(2)
2 Best Alternatives and Utility Functions	13	(1)
3 The Formal Model of Preferences	14	(5)
4 Decisions under Uncertainty and Expected Utility	19	(5)
5 Introduction to Social Preferences	24	(4)
6 Exercises	28	(1)
7 Appendix	29	(1)
8 Selected References	30	(3)
2. BARTER EXCHANGE	33	(18)
1 Introduction	33	(1)
2 Allocations	34	(2)
3 The Edgeworth Box Diagram	36	(1)
4 Pareto Optimal Allocations and the Core	37	(3)
5 Algebraic Examples	40	(6)
6 Final Notes on the Core: The Number of Coalitions	46	(1)
7 Exercises	46	(1)
8 Selected References	47	(4)
3. WELFARE PROPERTIES OF MARKET EXCHANGE	51	(28)
1 Introduction	51	(1)
2 The Two-Person, Two-Goods Model	52	(4)
3 Competitive Equilibrium in an Exchange Economy: Formal Preliminaries	56	(3)
4 The First Fundamental Theorem of Welfare Economics	59	(4)
5 The Second Fundamental Theorem of Welfare Economics	63	(7)
6 An Algebraic Example	70	(3)
7 Exercises	73	(2)
8 Selected References	75	(4)
4. WELFARE PROPERTIES OF "JUNGLE" EXCHANGE	79	(14)
1 Power as a Basis for Exchange	79	(1)
2 A Model of Indivisible Objects	80	(2)
3 A 4-Person 4-Houses Example	82	(3)
4 Finding a Market Equilibrium with Top Cycles	85	(2)
5 Fundamental Theorems of Welfare Economics and Jungle Economics	87	(4)
6 Exercises	91	(1)
7 Selected References	91	(2)
5. ECONOMIES WITH PRODUCTION	93	(26)
1 Introduction	93	(3)
2 Optimal Production Plans	96	(3)
3 Competitive Equilibrium Production Plans	99	(3)
4 The First Fundamental Theorem of Welfare Economics, Production Version	102	(2)
5 The Second Fundamental Theorem of Welfare Economics, Production Version	104	(3)
6 Extending the Production Model, and Combining Production and Exchange	107	(4)
7 An Algebraic Example in a Simple Production Model	111	(2)
8 Exercises	113	(1)
9 Appendix	114	(1)
10 Selected References	115	(4)
6. UNCERTAINTY IN EXCHANGE	119	(24)
1 Introduction	119	(1)
2 States of the World	120	(1)
3 Symmetric Uncertainty	121	(7)
4 Examples	128	(2)
5 Asymmetric Information	130	(9)
6 Exercises	139	(1)
7 Selected References	139	(4)
7. EXTERNALITIES	143	(18)
1 Introduction	143	(3)
2 Externalities in an Exchange Economy: An Example	146	(4)
3 Pigouvian Taxes and Subsidies: The Exchange Example Continued	150	(3)
4 Pigouvian Taxes and Subsidies: A Production Example	153	(4)
5 Exercises	157	(1)
6 Selected References	158	(3)
8. PUBLIC GOODS	161	(34)
1 Introduction	161	(1)
2 The Public Goods Model	162	(2)
3 The Samuelson Public Good Optimality Condition	164	(3)
4 Private Financing of the Public Good and the Free Rider Problem:	167	(2)
5 The Wicksell-Lindahl Tax Scheme	169	(5)
6 Fixed Tax Shares and Majority Voting	174	(2)
7 The Demand-Revealing Tax Scheme	176	(8)
8 The Groves-Ledyard Tax Scheme	184	(4)
9 Exercises	188	(1)
10 Selected References	189	(6)
9. COMPENSATION CRITERIA	195	(22)
1 Introduction	195	(1)
2 Notational Preliminaries	196	(1)
3 The Pareto Criterion	197	(2)
4 The Kaldor Criterion	199	(2)
5 The Scitovsky Criterion	201	(1)
6 The Samuelson Criterion	202	(2)
7 Compensation Criteria in Exchange Economies	204	(2)
8 Consumer's Surplus - Money Metrics	206	(2)
9 Consumers' Surplus - Boadway Paradox	208	(2)
10 Quasilinear Utility	210	(3)
11 Cost Benefit Analysis with One Good	213	(1)
12 Exercises	214	(1)
13 Selected References	215	(2)
10. FAIRNESS AND THE RAWLS CRITERION	217	(12)
1 Introduction	217	(1)
2 Fairness	218	(3)
3 The Rawls Criterion	221	(4)
4 Exercises	225	(1)
5 Selected References	226	(3)
11. LIFE AND DEATH CHOICES	229	(24)
1 Introduction	229	(1)
2 Economic Model - The Money Value of a Life	230	(1)
3 A Formal Version of the Economic Model	231	(3)
4 The Broome Paradox	234	(1)
5 Ex-Ante and Ex-Post	235	(3)
6 Problems with Utilitarian Mesures of Life/Death Choices	238	(5)
7 The Pareto Principle and Extended Pareto Principles	243	(3)
8 What's Repugnant About the Repugnant Conclusion?	246	(1)
9 Conclusions About Life and Death Choices	247	(1)
10 Exercises	248	(1)
11 Selected References	248	(5)
12. MAJORITY VOTING	253	(22)
1 Introduction	253	(1)
2 The Majority Voting Criterion	254	(2)
3 Majority Voting and Single-Peakedness	256	(7)
4 Majority Voting and Single-Peakedness: The Multidimensional Case	263	(5)
5 Multidimensional Voting - Are the Cycles That Bad?	268	(2)
6 Exercises	270	(1)
7 Selected References	271	(4)
13. ARROW'S IMPOSSIBILITY THEOREM	275	(24)
1 Introduction	275	(1)
2 A Simple Model for Arrow's Impossibility Theorem	276	(1)
3 Requirements on the Arrow Social Welfare Function	277	(3)
4 Applying the Requirements	280	(2)
5 Arrow's Impossibility Theorem	282	(5)
6 Relaxing the Universality Requirement	287	(1)
7 Reactions to Arrow's Impossibility Theorem	288	(3)
8 Another Version of Arrow's Theorem	291	(3)
9 Exercises	294	(1)
10 Selected References	295	(4)
14. DOMINANT-STRATEGY IMPLEMENTATION	299	(22)
1 Introduction	299	(2)
2 Examples of Strategic Manipulation	301	(4)
3 The Gibbard-Satterthwaite Impossibility Theorem	305	(7)
4 Significance of the Gibbard-Satterthwaite Theorem	312	(2)
5 Exercises	314	(2)
6 Appendix	316	(1)
7 Selected References	317	(4)
15. NASH IMPLEMENTATION	321	(24)
1 Introduction	321	(1)
2 An Example	322	(2)
3 Maskin Monotonicity	324	(2)
4 Maskin's Theorem	326	(6)
5 Comments on Maskin's Theorem	332	(1)
6 Limitations of Maskin Monotonicity and Approximate Implementation	333	(4)
7 Exercises	337	(2)
8 Appendix	339	(2)
9 Selected References	341	(4)
16. BAYESIAN IMPLEMENTATION	345	(18)
1 Introduction	345	(1)
2 Asymmetric Information in the Model of Types	346	(4)
3 Incentive Compatibility	350	(3)
4 From Truthful to Full Implementability	353	(3)
5 Bayesian Implementability: Example 3 Continued	356	(1)
6 Bayesian Implementability: Theory	357	(2)
7 Exercises	359	(1)
8 Selected References	359	(4)
17. EPILOGUE	363	(8)
SOLUTIONS TO EXERCISES	371	(28)
Index	399