Welfare Economics Towards a More Complete Analysis

by Ng, Yew-Kwang

• ISBN13: 9780333971215
• ISBN10: 0333971213
• Format: Hardcover
• Copyright: 2004-04-03
• Publisher: Palgrave Macmillan

Summary

This book attempts to make welfare economics more complete by discussing the recent inframarginal analysis of division of labor and by pushing welfare economics from the level of preference to that of happiness, making a reformulation of the foundation of public policy necessary.

Author Biography

Yew-Kwang Ng is Personal Chair in Economics, Monash University, Australia.

Table of Contents

Preface	ix
List of Abbreviations	xii
List of Symbols	xiii
1 Introduction	1	(25)
1.1 What is welfare economics?	2	(3)
1.2 Is welfare economics a positive or normative study?	5	(1)
1.3 Welfare versus utility	6	(10)
1.4 Utility measurability and interpersonal comparability	16	(2)
1.5 The organisation of the book	18	(1)
1.6 Summary	19	(1)
Appendix 1.1: Basic Value Judgments and Subjective Judgments of Fact	19	(7)
2 Pareto Optimality	26	(21)
2.1 The Pareto principle	26	(2)
2.2 The conditions for Pareto optimality	28	(10)
2.3 The attainment of Pareto optimality	38	(4)
2.4 Summary	42	(1)
Appendix 2.1: The First-Order Conditions for Pareto Optimality	43	(4)
3 The Direction of Welfare Change: Welfare Criteria	47	(18)
3.1 The debate on compensation tests	47	(5)
3.2 Taking distribution into account: Little's criterion	52	(5)
3.3 The inadequacy of purely distributional rankings	57	(4)
3.4 Retreat to purely efficiency comparisons	61	(1)
3.5 Quasi-Pareto improvements	62	(2)
3.6 Conclusions	64	(1)
3.7 Summary	64	(1)
4 The Magnitude of Welfare Change: Consumer Surplus	65	(27)
4.1 The origin of the concept: Dupuit and Marshall	65	(1)
4.2 Hicks' four measures and the average cost difference	66	(4)
4.3 Which measure?	70	(2)
4.4 Aggregation over commodities: the issue of path dependency	72	(4)
4.5 Aggregation over individuals: the Boadway paradox	76	(2)
4.6 The approximate nature of surplus measurement	78	(2)
4.7 Consumer surplus of diamond goods	80	(2)
4.8 Some uses of surplus measurement	82	(3)
4.9 Summary	85	(1)
Appendix 4.1: CV, EV or Marginal Dollar Equivalent?	86	(4)
Appendix 4.2: Acceptability of the Marshallian Measure The Benchmark Case of a Cobb-Douglas Utility Function	90	(2)
5 Social Choice	92	(35)
5.1 Arrow's impossibility theorem	92	(6)
5.2 The impossibility propositions by Kemp-Ng and Parks	98	(3)
5.3 Can the paradox of social choice be resolved?	101	(6)
5.4 Revealing the intensity of preferences	107	(8)
5.5 A dollar is a dollar: a 90 per cent solution to the paradox of interpersonal cardinal utility	115	(4)
5.6 The possibility of a Paretian liberal	119	(1)
5.7 Summary	120	(1)
Appendix 5.1: The Incompatibility of Individualism and Ordinalism	121	(6)
6 The Optimal Distribution of Income	127	(17)
6.1 Conceptual determination of optimal distribution	127	(2)
6.2 Utility illusion	129	(2)
6.3 Theories of optimal income distribution and taxation: Lerner and Mirrlees	131	(4)
6.4 Discussion	135	(6)
6.5 Concluding remarks	141	(2)
6.6 Summary	143	(1)
7 Externality	144	(20)
7.1 The concept and classification of externalities	144	(3)
7.2 Divergence from optimality and the tax/subsidy solution	147	(5)
7.3 Other solutions	152	(2)
7.4 The conscience effect	154	(4)
7.5 The Coase theorem and liability rules	158	(4)
7.6 Summary	162	(2)
8 Public Goods	164	(23)
8.1 Basic characteristics of public goods	164	(3)
8.2 Optimality conditions and the financing of public goods	167	(7)
8.3 An incentive-compatible mechanism for preference revelation	174	(6)
8.4 Income distribution as a peculiar public good: the paradox of redistribution	180	(2)
8.5 Economic theories of clubs	182	(1)
8.6 Summary	183	(1)
Appendix 8.1: The Paradox of Redistribution and the Paradox of Universal Externality	184	(3)
9 First, Second or Third Best?	187	(43)
9.1 The theory of second best	188	(5)
9.2 Softening the blow of second best	193	(3)
9.3 A theory of third best	196	(7)
9.4 Towards a third-best policy	203	(5)
9.5 Summary	208	(1)
Appendix 9.1: A Dollar is a Dollar - Efficiency, Equity and Third-Best Policy	208	(22)
10 Beyond Marginal Analysis: Perspectives from an Inframarginal Analysis of the Division of Labour	230	(27)
10.1 Towards a more complete welfare economics	230	(1)
10.2 Marginal versus inframarginal analysis	231	(1)
10.3 Basic inframarginal analysis of the division of labour	232	(2)
10.4 The devastating implications of increasing returns on some traditional conclusions	234	(6)
10.5 The Smith dilemma and its resolution	240	(3)
10.6 The Pareto optimality of general equilibrium in the new framework - the role of entrepreneurs	243	(3)
10.7 Welfare economic issues and the division of labour	246	(4)
10.8 Implications	250	(3)
10.9 Summary	253	(1)
Appendix 10.1: A Simple Model of the Yang-Ng Framework of Specialisation	254	(3)
11 From Preference to Happiness	257	(27)
11.1 Preference economics or welfare economics?	257	(4)
11.2 Developments that have prompted a reconsideration	261	(14)
11.3 A simplified analysis of welfare	275	(2)
11.4 Implications and concluding remarks	277	(5)
11.5 Summary	282	(2)
12 Conclusion: Towards an Interdisciplinary Study of Welfare?	284	(22)
12.1 Further considerations	287	(6)
12.2 Towards an interdisciplinary study of welfare	293	(3)
12.3 Summary	296	(1)
Appendix 12.1: Notes and References on Some Advanced and Applied Topics	297	(9)
References and Author Index	306	(45)
Subject Index	351