Welfare Economics and Social Choice Theory
This book covers the main topics of welfare economics - general equilib rium models of exchange and production, Pareto optimality, externalities and public goods - and some of the major topic of social choice the ory - compensation criteria, fairness, v
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WELFARE ECONOMICS AND SOCIAL CHOICE THEORY Allan M. Feldman Brown University
Kluwer • Nijhoff Publishing Boston/The Hague/ Dordrecht/ Lancastel
Distributors for North America: Kluwer Academic Publishers
101 Philip Drive Assinippi Park Norwell, Massachusetts 02061 Distributors outside North America: Kluwer Academic Publishers Group Distribution Centre P.O. Box 322 3300 AH Dordrecht, The Netherlands Library of Congress Cataloging in Publication Data Feldman, Allan, 1943Welfare economics and social choice theory. Bibliography: p. Includes index. 1. Welfare economics. 2. Social choice. I. Title. HB99.3.F45 330.15'5 79-25744 ISBN-13: 978-0-89838-034-7 e-ISBN- \3: 978-1-4615-8141-3 DOl: 10.1007/978-1-4615-8141-3 Copyright © 1980 by Martinus Nijhoff Publishing. Seventh pri nt i ng 1989 Softcover reprint of the hardcover I st edition 1989 No part of this book may be reproduced in any form by print, photoprint, microfilm or any other means, without written permission from the publisher.
CONTENTS
Preface
ix
Introduction The Concerns of Welfare Economics The Concerns of Social Choice Theory Practical Concerns of Welfare Economics and Social Choice Theory
1 1
1 Preferences and Utility Fundamental Assumptions Best Alternatives and Utility Functions The Formal Model of Preferences Introduction to Social Preferences Exercises Appendix Selected References
2 Barter Exchange Introduction Allocations
4
7 9 9 11
12
16 20 21 22 23 23 24 v
vi
CONTENTS
The Edgeworth Box Diagram Pareto Optimal Allocations and the Core Algebraic Examples Final Notes on the Core: The Number of Coalitions Exercises Selected References
3 Market Exchange and Optimality Introduction The Two-Person, Two-Goods Model Competitive Equilibrium in an Exchange Economy: Formal Preliminaries The First Fundamental Theorem of Welfare Economics The Second Fundamental Theorem of Welfare Economics An Algebraic Example Exercises Selected References
4 Production and Optimality Introduction Optimal Production Plans Competitive Equilibrium Production Plans The First Fundamental Theorem of Welfare Economics, Production Version The Second Fundamental Theorem of Welfare Economics, Production Version Extending the Production Model, and Combining Production and Exchange An Algebraic Example in a Simple Production Model Exercises Appendix Selected References
5 Externalities
Introduction Externalities in an Exchange Economy: An Example Pigouvian Taxes and Subsidies: The Exchange Example Continued Pigouvian Taxes and Subsidies: A Production Example Exercises Selected References
26 28
30
36 36 37 39 39
40 45 47
51 58
61
63 65 65 68 71 74 76 79 82 85 86 87
89 89 92 96
100 103 105
CONTENTS
6 Public Goods
Introduction The Public Goods Model The Samuelson Public Good Optimality Condition Private Financing of the Public Good and the Free Rider Problem The Wicksell-Lindahl Tax Scheme Fixed Tax Shares and Majority Voting The Demand-Revealing Tax Scheme The Groves-Ledyard Tax Scheme Selected References
7 Compensation Criteria Introduction Notational Prelimin
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