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The Evolution Of Welfare Economic Theory

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Pranit Das

on 24 June 2013

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Transcript of The Evolution Of Welfare Economic Theory

Origin, Developments and Contributions
The Evolution Of Welfare
Economic Thought
What is Welfare Economics & Economic Welfare?
The BIG Question
The Welfare Economic Thought Map
“From each according to his ability, to each according to his need”

– Karl Marx, 1875

“The greatest good of the greatest number of people”
- Jeremy Bentham

...1980’s New Keynesian approach...
Francis Ysidro Edgeworth
The use of utility and indifference curves in division and distribution of resources primarily at a micro economic level
The Edgeworth Box
In 1897, he set the foundations for highly progressive taxation.
Irish philosopher and political economist
Editor of a leading academic journal in economics
Henry Sidgwick
English utilitarian philosopher and economist
Founder and first president of the Society for
Three basic methods of ethics: egoistic hedonism, intuitionism and universalistic hedonism.
The limitations of free markets using marginal analysis.
Government intervention is desirable.
Alfred Marshall
Ceteris paribus
Difference between different types of
surpluses and internal and external
economies of scale.
‘Law of Demand’
‘Law Diminishing Marginal Utility’
The Law Of Diminishing Marginal Utility
Doctrine that satisfaction can be increased by taxing increasing-cost industries and subsidizing decreasing-cost industries
English economist
One of the most influential economists of his time
One of the founders of economics
Arthur Cecil Pigou
English economist
"It's all in Marshall"
Teacher and builder of the school
of economics at the
University of Cambridge
Alfred Marshall
Henry Sidgwick
The systematic habits of the school of moral sciences
Marshallian tradition
Pigou effect
Pigovian tax
Pigou Club
Pigou's work was influenced by his teachers.
Neo-classical approach
New-Welfare approach
Vilfredo Pareto
Italian engineer, sociologist, economist,
political scientist and philosopher
Pareto index
Pareto chart
Pareto's law
Pareto efficiency
Pareto distribution
Pareto principle
Studied economic efficiency and
income distribution
Pareto optimality
First, the marginal rates of substitution in consumption should be identical for all consumers, that is, when no consumer can be made better off without making others worse off.

Second, the marginal rate of transformation in production should be identical for all products, that is, it is impossible to increase the production of any good without reducing the production of other goods, that is, marginal physical product of a factor must be the same for all firms producing a good.

Third, The marginal rates of substitution in consumption are equal to the marginal rates of transformation in production, such that production processes must match consumer wants.
In a
Pareto optimal economic system
, every individual
unit of the economy is at the point of maximum
satisfaction attainable under the condition that
any change in allocation would make atleast one
individual worse off, even if it makes another better off.
A change to a different allocation that makes at least
one individual better off without making any other
individual worse off is called a
Pareto improvement
An allocation is defined as "Pareto efficient" or "Pareto optimal" when no further Pareto improvements can be made.
Nicholas Kaldor
John Hicks
Kaldor–Hicks efficiency
, an outcome is considered more efficient if a Pareto optimal outcome can be reached by arranging sufficient compensation from those that are made better off to those that are made worse off so that a Pareto improvement situation may be achieved.
Kaldor-Hicks Compensation Tests
The Kaldor Criterion
"An activity contributes to Pareto Optimality
if the maximum compensation the gainers are
willing to pay the losers to agree to the change
is greater than the minimum amount the losers
are willing to accept"
The Hicks Criterion
"An activity contributes to Pareto Optimality if the maximum
amount the losers are willing to pay the prospective gainers
is more than the minimum amount they are willing to accept
to forego the change".
British Economists
London School of Economics
(1910 – 2002)
Tibor Scitovsky
Hungarian born, American economist.
Associate Professor and Professor of Economics at Stanfo
Elected Distinguished Fellow of the American Econom
Association, Fellow of the Royal Economic Society,
member of
the American Academy of Arts and Sciences, and Corresponding Fellow of the British Academy.
The paradox occurs when the gainer from the change of allocation A to allocation B can compensate the loser for making the change, but the loser could also then compensate the gainer for going back to the original position.
The Scitovsky Paradox
Reversal Test
“The welfare of the people is the ultimate law”
Welfare economics
is a branch of economics that uses microeconomic techniques to evaluate economic well-being, especially relative to competitive general equilibrium within an economy as to economic efficiency and the resulting income distribution associated with it. It analyses social welfare, however measured, in terms of economic activities of the individuals that compose the theoretical society considered. Accordingly, individuals, with associated economic activities, are the basic units for aggregating to social welfare, whether of a group, a community, or a society, and there is no "social welfare" apart from the "welfare" associated with its individual units."
This is a huge mountain
Welfare Economics
Economic welfare
broadly refers to the level of prosperity and living standards in an individual or group of persons. In the field of economics, it specifically refers to utility gained through the achievement of material goods and services. In other words, it refers to that part of social welfare that can be fulfilled through economic activity."
Economic Welfare
"Welfare state is a concept of government in which the state plays a key role in the protection and promotion of the economic and social well-being of its citizens. It is based on the principles of equality of opportunity, equitable distribution of wealth and public responsibility for those unable to avail themselves of the minimal provisions for a good life. The general term may cover a variety of forms of economic and social organization."
Welfare State
Reducing socio-econom
inequalities (such as unemployment and ill health).
Important catalyst for e
onomic prosperity.
The maintenance of strong social welfare systems has helped foster stable societies and create a favorable environment for companies to invest in, while left-leaning governments have pursued policies of expanding welfare provision and improving employment rights to ensure that workers reap the benefits of the new global economy.
Srijana C. - Group Leader
Pranit D.
Mehndi s.
Dhruti C.
Kritika R.
Poonam D.
Sujaya C.
Insiya B.
Contributing Members
Urvashi J.
Hamza M.
Nikita S.
Jinita K.
Pratul S.
Vishnu K.
Namrata P.
Shatanik S.
Prithvijit S.
Jayjeet B.
Triraj B.
Namita B.
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