Developments in Major Fields of Economics
Edited by Gilbert Faccarello and Heinz D. Kurz
Chapter 42: Welfare economics
Welfare economics is the economic study of the definition and the measure of the social welfare; it offers the theoretical framework used in public economics to help collective decision making, to design public policies, and to make social evaluations. Questions usually tackled by welfare economics are the following: what is social welfare? Is there a reliable and satisfying way to measure it? If social welfare is based on individual preferences, can we derive a social preference from the preferences of individuals? Are competitive equilibrium outcomes optimal in the sense that they lead to the highest social welfare? Can any optimal outcome be achieved by a modified market mechanism? Can we really formulate recommendations for public policies on the basis of such welfare analyses? In spite of the uncontroversial importance of all these issues, some have been overshadowed while others have drawn enormous attention. The exclusion of normative information was justified in a bid to scientific rigour, until the oblivion of the prescriptive role of welfare economics. From then on, the death of welfare economics has been often foretold (Hicks 1939: 697; Chipman and Moore 1978: 548; Mishan 1981; Hausman and MacPherson 1996: 96). Setting out the history of welfare economics implies, first, to recall its evolution, secondly to discuss the reasons why it has almost missed its project. Thirdly, there are strong reasons to hope: welfare economics is back (Sen 1999; Fleurbaey and Mongin 2005), yet at the cost of accepting the normative nature of (welfare) economics.
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