Welfare accounting and heterogeneous individuals
In this paper, Dávila and Schaab introduce a new approach to welfare accounting which entails a decomposition of welfare assessments in economies with heterogeneous individuals and disaggregated production technologies. This approach is in contrast to traditional growth accounting, which seeks to trace the sources of output growth, not welfare.
Welfare accounting is useful i) to identify and quantify the ultimate origins of welfare gains and losses induced by changes in allocations, technologies, or factor endowments and ii) to characterize efficiency conditions.
A critical feature of their model is that the welfare accounting decomposition is exclusively based on preferences and technologies, and does not rely on assumptions about the (optimizing) behavior of agents, firm objectives, individual budget constraints, prices, or the notion of equilibrium. The authors identify the precise welfare relevant statistics that translate physical changes in allocations, technologies, and endowments into welfare changes. These are: a) marginal rates of substitution and aggregate marginal rates of substitution which measure the value of increases in individual and aggregate consumption or factor supply; b) marginal welfare products and aggregate marginal welfare products, which measure the social value of changes in individual and aggregate use of an input or factor in production; and v) marginal social values of output, which measure the social value of having an additional unit of a particular good.
Welfare Accounting
Authors: Eduardo Dávila, Andreas Schaab
From: Yale University, Toulouse School of Economics
Welfare accounting and population growth
In this paper, Adhami et al. argue that social welfare should include the number of people as well as their standard of living. The authors pose an interesting question:
“Between 1960 and 2019, consumption per person increased by a factor of 6 in Japan versus a factor of 3 in Mexico. However, Mexico’s population tripled while Japan’s population only rose by 30 percent. Which country was more successful?”
To answer this question, the authors redefine the pace of economic growth across countries using a consumption-equivalent (CE) metric based on total utilitarian social welfare. More simply, Adhami et al. argue that from a social welfare standpoint, population growth is substantially more important than growth in per capita consumption. Using this definition world growth rankings change quite significantly: countries with slow population growth — such as China, Japan, and Germany — plummet in their growth rankings. In contrast, middle-income countries exhibiting above-average population growth, such as Mexico, Brazil, and South Africa, move up!
Population and Welfare: The Greatest Good for the Greatest Number
Authors: Mohamad Adhami, Mark Bils, Charles I. Jones, Peter J. Klenow
From: Stanford University, University of Rochester
