Welfare Measurement in Imperfect Markets

Welfare Measurement in Imperfect Markets

A Growth Theoretical Approach

New Horizons in Environmental Economics series

Thomas Aronsson, Karl-Gustaf Löfgren and Kenneth Backlund

This book cleverly integrates the research on welfare measurement and social accounting in imperfect market economies. In their previously acclaimed volume, Welfare Measurement, Sustainability and Green National Accounting, the authors focused on the external effects associated with environmental damage and analysed their role in the context of social accounting. This book adopts a much broader perspective by analysing a wide spectrum of resource allocation problems of real-world market economies.

Chapter 7: Numerical Applications: Dynamic Global Economy Models

Thomas Aronsson, Karl-Gustaf Löfgren and Kenneth Backlund

Subjects: economics and finance, environmental economics, valuation, environment, environmental economics, valuation


Except for the numerical analysis set out in Chapter 4, where our main concern was to establish whether a static approximation of the Pigouvian tax constitutes a reasonable approximation of the shadow price of pollution, we have so far concentrated on theoretical aspects of social accounting. The theoretical analysis helps us understand how national and global welfare measures depend on the functioning of the economic system. Moreover, it provides a general understanding of how the tool kit developed in earlier chapters can be applied to derive exact welfare measures. On the other hand, theoretical models do not allow us to assess the empirical importance of different parts of the welfare measures (for example, the relative welfare contributions of technological change, market distortions, and so on). In this chapter, we return to the discussion in Section 4.4, while at the same time shifting our focus to the analysis of global economy models. The main purpose is to address the welfare contributions of external effects and technological change by means of numerical methods. To be more specific, is it necessary to estimate such welfare contributions in order to arrive at an accurate – or at least reasonably accurate – estimate of the correct welfare measure, or is it possible to proceed as if the resource allocation is a first best equilibrium with a stationary technology? Given the enormous difficulties involved in practical applications of social accounting, it is helpful to know to what extent different entities are likely to contribute to welfare...

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