Foundations of Economic Welfare Analysis

Catalog description

How do we know which forms of economic organization are preferred to others? How do we evaluate who wins and loses within the economic sphere? How do we know when the allocation of goods and services by the economic system is societally optimal? How do we define what is societally optimal? When do government policies improve societal welfare and when do they worsen it? How do we measure societal welfare? When should governments intervene in the economic system and to what extent? How large should the economic system be relative to the natural system? How much should present generations consume relative to future ones? Welfare economics is a branch of economics that seeks to answer these questions. In this course we will develop the concepts and tools needed to do so. Our primary focus will be on evaluating the efficiency and equity implications of public policies using modern theory and empirical methods. In the first part of the course we review the ways in which we can and cannot quantify the welfare of economic agents. We begin by reviewing the foundations of microeconomic theory which we use to analyze how the welfare of economic agents is altered due to exogenous changes in prices and/or income. Using these welfare measures, in the second part of the course we examine how public policies affect the welfare of economic agents using tools from public finance. Since our ultimate goal is applying welfare theory to empirical questions we will also review in part the empirical methods and tools required for conducting state of the art research in this area.