Welfare Economic Theory Research Articles

“Making It Happen”: Deciphering Government Branding in Light of the Sydney Building Boom

“Making It Happen”: Deciphering Government Branding in Light of the Sydney Building Boom

Implementing Islamic microfinance in Nigeria: a matter of equity and social justice

Many hardworking people from unprivileged backgrounds are automatically disadvantaged simply because they lack access to financial capital. Observably, microfinance provides a way out of the poverty trap if it is deployed appropriately. Nigeria, like many other developing countries, has thus taken up the challenge of developing inclusive microfinancing initiatives. In the country, funding for small-scale businesses is available from both the government and the private sector. Unfortunately, the nature and conditions of the schemes fail to meet the sensitivities of a substantial group who would otherwise have been eligible for the grants and loans. The practical implication is that such group would be twice excluded from the financial system. These potentially excluded groups are those poor Muslims who might desire funding but are unable to benefit from the government schemes because the loan conditions contradict their faith. It is argued that the effect of the status quo is that it breeds further inequality and inequity and could even amount to outright (or indirect) discrimination. This contention is substantiated through constitutional analysis and also in light of a contemporary economic welfare theory – the Capability Approach. The article argues that this marginalized group has a right to Islamic microfinance. This right, it is further contended, places justiciable (positive and negative) duty on the government. It, therefore, calls that Islamic microfinance should forthwith be embedded into the fabric of public governance in the country. The article demonstrates the exclusionary problem by analysing some of the existing schemes, and it proffers alternative sharia-compliant conditions for existing schemes. Keywords: Islamic microfinance; social development, distributive justice; indirect discrimination; constitutional law/human right, capability approach

The Potential of Pro-Market Activism as a Tool for Making Finance Work for Africa: A Political Economy Perspective

Under what conditions can government interventions in the financial sector be a successful tool to increase the financial resources available for productive investment in sub-Saharan Africa? This is the question which drives this paper. The relevance of research on this issue is widely acknowledged: There is strong empirical evidence that access to finance for private investment is essential for enterprise development and economic growth. However, most financial systems in sub-Saharan Africa are highly exclusive and poorly developed in terms of size and efficiency. The lack of financial intermediation into higher levels of domestic investment primarily results from market failures which make the provision of financial services to small and medium enterprises (SMEs) prohibitively costly or unattractive. Historically and in line with welfare economic theory market failures have provided an argument for activism, defined as deliberate government interventions in the financial sector to promote the delivery of financial services to segments of the private sector that are underserved. The experience with activism has been mixed at best. However, even though activism does not guarantee an increase in broad-based productive private investment, past experience suggests that achieving this goal without deliberate government interventions is difficult, if not impossible. For this reason there is a renewed interest in the question of how far government interventions in financial markets could promote finance for development. This paper makes three main arguments.

Addressing Limits to Mainstream Economic Analysis of Voluntary and Nonprofit Organizations

The article outlines the contours of an “Austrian”-theory-inspired perspective on the study of non-profit and voluntary social processes and institutions while using as a background and vehicle the Austrian economics criticism of mainstream neoclassical economics. The argument proceeds in two steps: First, it focuses on the explicit and implicit role welfare economics theory and efficiency/optimality models have come to assume in theorizing essential aspects of the non-profit sector. It points out the intrinsic limits of neoclassical economics in this respect. Second, it follows the logical implications of the arguments advanced in the first step to the reconstitution of a broader theory of social order that (a) circumvents the incapacitating reliance on maximization models of rationality and general equilibrium logic and that (b) pivots in a natural way on the notions of voluntary social actions, associations, and processes.

Admissible utility functions for health, longevity, and wealth: integrating monetary and life-year measures

The value of reducing health and mortality risks is often measured using value per statistical life (VSL) or one of several life-year measures (e.g., life years, quality-adjusted life years, disability-adjusted life years). I derive the utility function that is admissible when preferences for health and longevity, conditional on wealth, are consistent with any life-year measure (LYM) and examine the implications for marginal willingness to pay (WTP) for increases in health, longevity, and current-period survival probability. I conclude that marginal WTP for any LYM is decreasing and that VSL is increasing in the LYM. These results imply that cost-effectiveness analysis using a fixed monetary value per LYM is not consistent with economic welfare theory and that the benefit of a health improvement cannot be calculated by multiplying the change in a LYM by a constant.

The social cost of carbon emissions: Seven propositions

Determining the social cost of carbon emissions (SCC) is a crucial step in the economic analysis of climate change policy as the US government’s recent decision to use a range of estimates of the SCC centered at $77/tC (or, equivalently, $21/tCO2) in cost-benefit analyses of proposed emission-control legislation underlines. This note reviews the welfare economics theory fundamental to the estimation of the SCC in both static and intertemporal contexts, examining the effects of assumptions about the typical agent’s pure rate of time preference and elasticity of marginal felicity of consumption, production and mitigation technology, and the magnitude of climate-change damage on estimates of the SCC. We highlight three key conclusions: (i) an estimate of the SCC is conditional on a specific policy scenario, the details of which must be made explicit for the estimate to be meaningful; (ii) the social discount rate relevant to intertemporal allocation decisions also depends on the policy scenario; and (iii) the SCC is uniquely defined only for policy scenarios that lead to an efficient growth path because marginal costs and benefits of emission–mitigation diverge on inefficient growth paths. We illustrate these analytical conclusions with simulations of a growth model calibrated to the world economy.

An Economic Analysis of the European Commission's Proposal for a European Account Preservation Order

This paper performs an economic analysis of the European Commission’s proposal for a European-wide preservation order. Bentham’s utilitarianism theory suggests that legislators must take into mind the pleasures and pains associated with any legislation and to form laws in order to create the greatest good for the greatest number. These ideas are reflected in the modern economic theories of welfare economics. But are these principles sufficient to create effective legal rules and achieve justice? Section 2 of this work analyzes the difficulties in obtaining a provisional measure to preserve another party’s assets in another Member State of the European Union (“EU”). Section 3 sets out the Commission’s proposal for a European Account Preservation Order (“EAPO”). Section 4 applies welfare economics principles in order to identify the effect of legal rules related to this proposal, while it proposes an alternative approach to these principles. Lastly, section 4 makes suggestions on the proposal based on this alternative approach.

A Model of Designing Smart Water Market of Chinese Inter-Basin Diversion Project

This paper put forwards an improved technical path to design SWM for Chinese inter-basin diversion project, taking the institutes of government as an experimental environment, which is thought also need to be designed and tested. Then, a method for designing institutional environment of water market is further explored, by applying the Welfare economics theory，game theory, combined with a prototype, focused on the problem of the initial allocation and transaction of water diversion permission right in China.

An economic analysis of the European commission’s proposal for a European account

This paper performs an economic analysis of the European Commission’s proposal for a European-wide preservation order. Bentham’s utilitarianism theory suggests that legislators must take into mind the pleasures and pains associated with any legislation and to form laws in order to create the greatest good for the greatest number. These ideas are reflected in the modern economic theories of welfare economics. But are these principles sufficient to create effective legal rules and achieve justice? Section 2 of this work analyzes the difficulties in obtaining a provisional measure to preserve another party’s assets in another Member State of the European Union (“EU”). Section 3 sets out the Commission’s proposal for a European Account Preservation Order (“EAPO”). Section 4 applies welfare economics principles in order to identify the effect of legal rules related to this proposal, while it proposes an alternative approach to these principles. Lastly, section 4 makes suggestions on the proposal based on this alternative approach.

L'analyse de la politique économique selon Pigou

The economics of A.C. Pigou is generally regarded as an ensemble of policies—chiefly ‘Pigouvian’ taxes and subsidies—designed to maximize economic welfare. We contest this view, arguing that Pigou was not a proponent of specific policies but rather a logician of policy analysis. Although he assessed welfare programs of his time, his judgments on policies were invariably prima facie, hedged and qualified by a formidable array of restrictive and contingent variables. Thus there are no definitively Pigouvian welfare measures. In Part I of the essay, we show that Pigou developed a blueprint for an analytical theory of economic welfare that specified the conditions an analysis of economic policy must satisfy in order to qualify as scientifically legitimate. In Part II, we examine his writings on public finance in order to explore the main inference he drew from this theory: the historicity of policy analysis, a critical aspect of his thought that has been largely neglected in the secondary literature.

Regional public transportation scheduling model based on welfare economics and DEA

In this paper, a regional public transport scheduling model based on the theory of welfare economics is proposed. First, the assumptions to simplify the regional transit-scheduling problems are established, and the public transportation operators and passengers surplus are defined which is derived from the theory of welfare economics. Considering the influence of government subsidies on the maximisation of social welfare, the regional transit-scheduling model is built. Meanwhile, as more than one scheduling solutions are available,data envelope analysis (DEA) is applied to chose the optimal solution of public transport operators from the perspective of welfare and efficiency. The influences with or without government subsidies on the social welfare and efficiency of public transportation are compared by an example. The results show that it is difficult to obtain an optimal solution for effective dispatching without taking the social product property of public transport and government subsidies into account, and DEA is helpful to select the optimal solution for public transport managers.

Human development index literacy as a new social development theory

This article reviews the four major theories of development by which the advancement of the modern world has been explained since Adam Smith's The wealth of nations; these major theories include the classical economic theory, the neoclassical economic theory, the Index of Sustainable Economic Welfare theory and the Human Development Index theory. It traces the story of each of the theories and reveals that the Index of Sustainable Economic Welfare and Human Development Index are now accepted as better theories of development. However, the Index of Sustainable Economic Welfare and Human Development Index theories have been found here to be deficient in participatory attributes and not to promote the exploration and use of indigenous knowledge in the process of development planning and implementation. Consequently, this article proposes the Human Development Index Literacy Theory of social development as a new and alternative development theory that is not only human-centred but also participatory in its approach to development planning and execution.

Tarifas sociales para el servicio de agua potable en Arica, Chile y su impacto teórico en la distribución del ingreso de los usuarios

The purpose of this paper is to evaluate the redistributive effect of a system of social tariffs of water supply services, compared to the current direct subsidies from the government to low-income consumers. The goal is to determine social prices for non-deficit operation, using a mathematical model based on the theory of welfare economics. A scheme of differentiated tariffs according to income of consumers in the city of Arica, Chile, is evaluated as to the theoretical impact on the distribution of wealth of these consumers. From the results of this investigation, we concluded that social tariffs have a small advantage over direct subsidies in terms of redistribution, but undesirable side effects are produced, creating market distortions that could cancel out any significant redistribution of wealth.

Financial adaptation to disaster risk in the European Union

Increasing losses from weather related extreme events coupled with limited coping capacity suggest a need for strong adaptation commitments, of which public sector responses to adjustments to actual and expected climate stimuli are key. The European Commission has started to address this need in the emerging European Union (EU) climate adaptation strategy; yet, a specific rationale for adaptation interventions has not clearly been identified, and the economic case for adaptation to extremes remains vague. Basing the diagnosis on economic welfare theory and an empirical analysis of the current EU and member states’ roles in managing disaster risk, we discuss how and where the public sector may intervene for managing climate variability and change. We restrict our analysis to financial disaster management, a domain of adaptation intervention, which is of key concern for the EU adaptation strategy. We analyse three areas of public sector interventions, supporting national insurance systems, providing compensation to the affected post event as well as intergovernmental loss sharing through the EU solidarity fund, according to the three government functions of allocation, distribution, and stabilization suggested by welfare theory, and suggest room for improvement.

Measures of efficiency in healthcare: QALMs about QALYs?

Comparative economic evaluations are concerned with the relative efficiency of alternative uses for scarce resources. Cost-benefit analysis (CBA) is grounded in economic welfare theory and attempts to identify alternatives with a net social benefit, measuring the created value in terms of individual willingness to pay (WTP). In applied health economics, cost-effectiveness evaluation (CEA) is more widely used than CBA, adopting a modified efficiency criterion, minimization of incremental costs per quality-adjusted life year (QALY) gained ("cost-utility analysis," CUA). CBA has been greeted with skepticism in the health policy field, primarily owing to resistance to a monetary measure of benefit and owing to concerns that WTP may be unduly influenced by ability to pay. The move to CUA, however, has not been without problems. The framework deviates from economic theory in important aspects and rests on a set of highly restrictive assumptions, some of which must be considered as empirically falsified. Results of CUAs do not seem to be aligned with well-documented social preferences and the needs of healthcare policy makers acting on behalf of society. By implication, there is reason to assume that a context-independent value of a QALY does not exist, with potentially fatal consequences for any attempt to interpret CUAs in a normative way. Policy makers seem well advised to retain a pragmatic attitude towards the results of CUAs, while health economists should pay more attention to the further development of promising alternative evaluation paradigms as opposed to the application of algorithms grounded in poor theory.

Marx dans un nouveau cadre welfariste

Samuelson's statement about Marx being a minor post-Ricardian from the viewpoint of pure economic theory leaves one perplexed. Is theoretical welfare economics a part of pure economic theory? This paper shows that theoretical welfare economics is the foundation of the theory of economic policy and intervention. Marx also sets forth a theory of intervention based on economic arguments. Therefore, Marx should be studied within the broader scope of theoretical welfare economics. Moreover, Marx's system contains not only analytical devices but also important value judgments and the theory of welfare economics aims to study the interrelations between value judgments and economic interventions. Methodological contradictions are shown in, and removed from, the theory of welfare economics in order to show the framework of Marx's entire system. The system as a whole is far beyond the realm of Ricardian economics, for it can be consistent and scientific although it contains value judgments. Samuelson's narrow approach and fuzziness in the methodological foundations of welfare economics hindered an appreciation of the full value of Marx's approach.

SOCIAL RESPONSIBILITY ASPECTS OF AGRICULTURAL EXTERNALITIES ECONOMICAL REGULATION

In the latter years various scientists have analysed multifunctional character of agriculture. Attention is focused on the fact that agriculture not only produces commodities, but also makes influence on environment. Intensive non sustainable agriculture damages environment. The negative environmental impacts of agriculture may be characterised through the harmful contribution of agricultural activities to soil, water and air quality, bio-diversity, wildlife and semi-natural habitats, rural landscape. The results of positive agricultural externalities are public goods. Agriculture contributes to fulfilling societal goals like viability of rural areas and their development, food security, preservation of cultural heritage. Agriculture may also have positive external effects on other economic sectors such as tourism. The problem of agricultural externalities is that externalities do not appear in the revenue and cost accounts of the farmer. According to this farmers have no motivation to create positive externalities (so it is necessary to compensate for the benefits of the amenity provided) and to bear the cost of environmental harm. It raises the necessity to substantiate the implements, which could stimulate positive externalities and restrict negative ones. In this article welfare economic theory is used to analyse agricultural externalities and principles of their economical regulation. The aim of this research is to examine theoretical, methodological and analytical questions of agricultural externalities regulation. Methods of economic regulation of agricultural externalities were described by M. Bohman (1999), J. Pretty (2001), P. Paarlberg (2002), J. Lankoski (2003), L. Casini (2004), S. Prestegard (2004), E. Romstad (2004), G. Boody (2005), A. Randall (2007). Mostly used methods for economical regulation of negative agricultural externalities are environmental taxes, ecological licences. Expecting positive agricultures’ impact on environment, it requires state regulation and support through subsidy related with agri-environmental requirements or other policy mechanisms. If agricultural externalities could be easily measurable, there would be possible to construct rational system of agricultural externalities regulation and to provide society‘s desirable extent of agricultural goods. This could be implemented in such way: having positive externality to farmers income including external social benefit, on the contrary, having negative externality to farmers costs adding external social costs. Unfortunately, scientists face difficulties evaluating agricultural externalities. Valuation problems raises due to such factors: agricultural economic processes are coherent with biological processes, production proceeds in large territory, etc. The object of the research – agricultural externalities and their economical regulation. The purpose of the article – to validate the necessity of agricultural externalities economic regulation seeking positive social and environmental influence for rural areas. Case study revealed that effective implement for regulation negative externalities in agriculture could be creation of property rights market for externalities. Unfortunately due to complicated bureaucratic control ecological license the same as Pigou tax is rarely in agriculture. Importance of subsidies for agricultural externalities regulation is emphasized – economically it’s more effective to support environmental technologies and ways of farming than spending for degrading natural resources recreation. Though subsidies related with production extent should be avoided because they stimulate intensive farming and often influence negative externalities.

On the welfare theoretic foundation of cost-effectiveness analysis—the case when survival is not affected

This paper develops a welfare theoretic foundation for cost-effectiveness analysis (CEA) when survival is not affected. With this foundation, all costs and their corresponding utility-terms should be included. A key question, though, is whether these utility-terms are consistent with quality-adjusted life year (QALY) (utility) theory or not. The results show that health care costs and changes in the utility of health should be included. However, as QALYs do not capture the utility of changes in consumption (as this utility must be independent of health, according to QALY theory), the corresponding changes in consumption costs should be excluded. Regarding the costs for changes in absence from work, these should only be included if the utility of changes in the amount of leisure is included. As no QALY theory has been developed that includes this utility, it is unclear how to handle these costs (even if there are arguments for excluding them). For changes in productivity at work, though, there are robust arguments for the inclusion of these costs. Overall, it seems difficult to provide a clear basis for CEA in economic welfare theory when also including non-medical goods such as consumption and leisure.

The trade-off between efficiency and equity in road safety policy

This paper discusses the relationship between efficiency and equity as objectives of road safety policy. The term efficiency refers to the efficient use of all road safety measures. Road safety measures are used efficiently if the priority given to them is based on the criterion that marginal social benefits should be at least equal to marginal social costs. To use road safety measures efficiently therefore means that the priority given to each measure is set strictly according to cost–benefit analyses. Thus, the main question discussed in this paper is whether setting priorities for safety measures strictly according to cost–benefit analyses will produce results that are regarded as equitable and fair. The notions of equity and fairness do not have any universally accepted definitions. In the paper, an attempt is made to apply John Rawls’ difference principle as a criterion of fairness with respect to the distribution of risk. The distribution of risk is examined along several dimensions: between groups of road users, between regions, between social groups, and with respect to the relationship between who pays for a road safety measure and who benefits from it. It is concluded that there is a conflict between efficiency and equity as far as the provision of road safety is concerned. Promoting greater equity requires a departure from efficiency, as defined in economic welfare theory, as the only criterion for setting policy priorities.

The Welfare Economic Theory of Green National Accounts

This paper takes a critical look at the literature on green national accounts. The problem studied is to find a linear index of economic variables that responds to perturbations in the same direction as social well-being. The thesis of a large literature, that net national product (which is a flow) is that index in closed economies, is shown in some interpretations to be simply false and in others to suffer from deep estimation problems. It is argued that capital depreciation using shadow prices should certainly be included in national accounts, but that the right welfare index is a comprehensive measure of wealth, defined as the shadow value of an economy's stock of all capital assets. It is shown that comprehensive wealth is usable as a criterion for policy evaluation as well as for determining sustainable economic development.