Observations on technical change and paretian welfare economics

Abstract

This article brings together two major topics of economic theory: technical change and Paretian welfare economics. Until now, the tendency has been to study these topics separately. By introducing economic search behaviour in the first phase of technical change, the analysis of technical change is broadened by means of a link between this behaviour and so-called virtual goods. The concept of Pareto optimality is broadened by expanding the space of goods with new and virtual goods. The question is whether the generalized Paretian theory makes it possible to compareex post equilibria after the process of technical change with theex post situation before this process takes place. Although generalized Pareto optimality does not allow a welfare judgement on aprocess of technical change, the theory still provides us with an explanation for the allocation of resources of R&D in terms of consumer preferences and with an analytical device to compare actual economic structures with a generalized Pareto optimum in a static setting.