Abstract
Advances in theoretical and computable general equilibrium modeling brought their conceptual foundations more in line with standard microeconomic constructs. This reduced the theoretical gap between welfare measurements using a partial or a general equilibrium approach. However, the separation of the partial and general equilibrium literatures lingers in many applications that this manuscript seeks to bridge. The now shared conceptual foundations, the importance of functional specification, the role of common price movements and closure rules are discussed. The continuing stricture in U.S. Government guidelines against including secondary effects in welfare measures is questioned.
Highlights
There are two schools of practice for empirical welfare analysis: partial and general equilibrium (PE and GE, respectively)
While the historical divide goes back at least to Walras and Marshall and some theory and literature exists in common, each school has its own additional literature and practitioners with little communication
The PE and GE divide appears from the expectation that a benefit-cost analysis (BCA) is part of a Regulatory Impact Analysis process in the United States
Summary
There are two schools of practice for empirical welfare analysis: partial and general equilibrium (PE and GE, respectively). The PE and GE divide appears from the expectation that a benefit-cost analysis (BCA) is part of a Regulatory Impact Analysis process in the United States. OIRA has issued several guidance documents for BCA more generally and for regulation in particular (U.S OMB, 1992, 2003). This central guidance has spawned additional guidance from some other agencies. In the review of assumptions that unite and divide PE and GE, the issue of the logical consistency of this apparent proscription against GE analysis will be assessed for its appropriateness and current relevance.
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