Chapter

Measuring Welfare Changes—A Brief Overview

Chris Jones

in Applied Welfare Economics

Published in print May 2005 | ISBN: 9780199281978
Published online July 2005 | e-ISBN: 9780191602535 | DOI: http://dx.doi.org/10.1093/0199281971.003.0001
Measuring Welfare Changes—A Brief Overview

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This chapter examines welfare measures when they are made without cardinal utility functions to understand the properties of the aggregate dollar changes in utility computed in a conventional Harberger (1971) analysis. The Hatta (1977) decomposition is used to show how, for individual consumers, dollars are a reliable proxy for utility, whenever policy changes are incrementally small. This decomposition finds that income effects are a scaling coefficient on the efficiency effects from marginal policy changes that play no role in single consumer economies. A number of different approaches are examined to account for distributional effects when there are heterogenous consumers.

Keywords: Broadway paradox; compensating variation; compensation tests; distributional effects; equivalent variation; excess burden of taxation; Hatta decomposition; Pareto efficiency; price-quantity indexes

Chapter.  16044 words.  Illustrated.

Subjects: Public Economics

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