Welfare economics is a branch of economics that uses microeconomic techniques to evaluate economic well-being, especially relative to competitive general equilibrium within an economy as to economic efficiency and the resulting income distribution associated with it. It analyzes social welfare, however measured, in terms of economic activities of the individuals that compose the theoretical society considered. Accordingly, individuals, with associated economic activities, are the basic units for aggregating to social welfare, whether of a group, a community, or a society, and there is no "social welfare" apart from the "welfare" associated with its individual units.
Welfare economics typically takes individual preferences as given and stipulates a welfare improvement in Pareto efficiency terms from social state A to social state B if at least one person prefers B and no one else opposes it. There is no requirement of a unique quantitative measure of the welfare improvement implied by this. Another aspect of welfare treats income/goods distribution, including equality, as a further dimension of welfare.
Social welfare refers to the overall welfare of society. With sufficiently strong assumptions, it can be specified as the summation of the welfare of all the individuals in the society. Welfare may be measured either cardinally in terms of "utils" or dollars, or measured ordinally in terms of Pareto efficiency. The cardinal method in "utils" is seldom used in pure theory today because of aggregation problems that make the meaning of the method doubtful, except on widely challenged underlying assumptions. In applied welfare economics, such as in cost-benefit analysis, money-value estimates are often used, particularly where income-distribution effects are factored into the analysis or seem unlikely to undercut the analysis.
The capabilities approach to welfare argues that freedom - what people are free to do or be - should be included in welfare assessments, and the approach has been particularly influential in development policy circles where the emphasis on multi-dimensionality and freedom has shaped the evolution of the Human Development Index.
Other classifying terms or problems in welfare economics include externalities, equity, justice, inequality, and altruism.
Read more about Welfare Economics: Two Approaches, Efficiency, Income Distribution, A Simplified Seven-equation Model, Efficiency Between Production and Consumption, Social Welfare Maximization, Welfare Economics in Relation To Other Subjects, Paretian Welfare Economics, Criticisms
Famous quotes containing the words welfare and/or economics:
“Whether in the field of health, education or welfare, I have put my emphasis on preventive rather than curative programs and tried to influence our elaborate, costly and ill- co-ordinated welfare organizations in that direction. Unfortunately the momentum of social work is still directed toward compensating the victims of our society for its injustices rather than eliminating those injustices.”
—Agnes E. Meyer (18871970)
“There is no such thing as a free lunch.”
An axiom from economics popular in the 1960s, the words have no known source, though have been dated to the 1840s, when they were used in saloons where snacks were offered to customers. Ascribed to an Italian immigrant outside Grand Central Station, New York, in Alistair Cookes America (epilogue, 1973)