A Contribution to the Theory of Welfare Accounting

A kind of unified theory is proposed as a dynamic generalization of the standard consumer-surplus methodology for evaluating welfare changes. The unified theory allows rigorous dynamic welfare comparisons to be inferred between any two economic situations—from just knowing current incomes and observing a short-run market demand schedule. Essentially, the change in present discounted future utility is exactly captured by the formula: difference in current income plus consumer surplus . This well-known formula is thereby shown to cover a far wider class of welfare comparisons than is customarily treated in the textbook static case.