Modelling the choice between regulation and liability in terms of social welfare

Abstract.  Using a formal political economy model with asymmetric information, we illustrate the conditions under which an environmental protection system based on extending liability to private financiers is welfare superior, inferior, or equivalent to a system based on an incentive regulatory scheme subject to capture by the regulatees. We explicitly consider the following factors: the cost of care and its efficiency in reducing the probability of an environmental accident, the social cost of public funds, the net profitability of the risky activities, the level of damages, and the regulatory capture bias. We characterize in such a parameter space the regions where one system dominates the other. JEL classification: D82, K32     

Military reserves and social welfare

We consider the contribution of reserves to the efficient mobilization of military manpower. Our analysis suggests that offering recruits an option to serve as reservists enhances social welfare if there is a sufficiently strong relationship between recruit performance in the military and their expected civilian income.     

Social cooperatives,social welfare associations and social networks

We use an original data-set to study how participation in two types of non-profit organizations – i.e. social welfare associations and social cooperatives – affects individual social capital, understood as a network of cooperative relationships. Participation in both the types of organization allows members to start new social relations. However, social welfare associations seem to play a significantly greater role in the development of volunteers’ social capital, favouring the creation of weak ties that are used to exchange information and advice, and offering the opportunity to establish stronger ties entailing concrete mutual support. Within social cooperatives, workers appear to develop their individual social capital to a greater extent than volunteers. Our results suggest that the composition of the workforce, the depth of members’ involvement in the organization’s activities and the human resources strategies adopted by the management influence the creation of cooperative relations through on-the-job interactions.     

Counterfeiting, enforcement and social welfare

This paper uses a vertical product differentiation model to discuss the influences caused by counterfeiting on prices and outputs of original products, consumer surplus and social welfare. We also explore the impact of the government??s enforcement on counterfeiting and social welfare. We find that as counterfeiting may occur, sales of the original product could either increase or decrease. The welfare effects of government enforcement are shown as follows. First, a strict enforcement on counterfeiting by government may either increase or decrease welfare. Second, when counterfeiting emerges, welfare under a stricter enforcement is not necessarily larger than that without enforcement. Last, a strict enough enforcement can still improve welfare even if there is a relatively high enforcement cost.     

Allowing disagreement in evaluations of social welfare

There is no consensus on how to measure interpersonally comparable, cardinal utility. Despite of this, people repeatedly make welfare evaluations in their everyday lives. However, people do not always agree on such evaluations, and this is one important reason for political disagreements. Thus, to keep in control of the normative premises, decision makers may prefer information which can be used as input to an arbitrary social welfare function to information which is the output from a social welfare function specified by the analyst. In this paper we try to identify and simplify sufficient welfare indicators; information which enables decision makers to arrive at welfare evaluations of social states or projects, according to their own ethical beliefs. Our conclusion is that providing factual information about different population groups, their social state, size, and characteristics, may be better for this purpose than the more traditional approach of focusing on ordinal utility information.     

Subjective welfare,isolation, and relative consumption

The recent literature has shown that subjective welfare depends on relative income. Much of the existing evidence comes from developed economies. What remains unclear is whether this is a universal human trait or an artifact of a prosperous, market-oriented lifestyle. Using data from Nepal, a mountainous country where many households still live in relative isolation, we test whether poorer and more isolated households care less about relative consumption. We find that they do not. We investigate possible reasons for this. We reject that it is due to parental concerns regarding the marriage prospects of their children. But we find evidence in support of the reference point hypothesis put forth by psychologists: household heads having migrated out of their birth district still judge the adequacy of their consumption in comparison with households in their district of origin.     

Individual welfare functions and social reference spaces

A model of interdependent welfare functions is developed. The relationship between the parameters of an individual's welfare function and the income distribution in his Social Reference Space is established. Results based on Dutch data are presented.     

Individual welfare,social deprivation and income taxation

Summary. In a homogeneous framework where individuals can only be distinguished on the basis of their incomes, we examine the incidence of taxation on the amount of deprivation felt in the society. We conceive deprivation in terms of utility or well-being rather than just in terms of income and we measure it by comparing the deprivation profiles arising in the different situations. We identify the restrictions to be imposed on the utility function which guarantee that a more progressive system of taxes always results in less social deprivation. We show that, in general, it is not possible to get an equivalence and realize a social improvement in terms of social deprivation by substituting a more progressive system of taxes for a less progressive one. Received: September 20, 1999; revised version: March 6, 2002 RID="*" ID="*" This paper forms part of the research programme of the TMR network Living Standards, Inequality and Taxation [Contract No. ERBFMRXCT 980248] of the European Communities whose financial support is gratefully acknowledged. Chakravarty wishes to express his sincere gratitude to the French Ministry of Education for financing his stay at DELTA during which this paper was written. The authors would like to thank Stephen Bazen, Nicolas Gravel and an anonymous referee, whose comments have helped to improve the paper, but they retain sole responsibility for remaining deficiencies. Correspondence to: P. Moyes     

Maximizing social welfare in congestion games via redistribution

It is well known that efficient use of congestible resources can be achieved via marginal pricing; however, payments collected from the agents generate a budget surplus, which reduces social welfare. We show that an asymptotically first-best solution in the number of agents can be achieved by the appropriate redistribution of the budget surplus back to the agents.     

Household inequality, social welfare, and trade

Working with Sen social welfare functions (meaning explicit separability between mean income and income dispersion), we develop a generalized dual approach to tracking household inequality aspects of social welfare in general equilibrium. We highlight how household equity can be examined analytically alongside production efficiency in duality-based models, using our dual framework to explore potential trade-offs between efficiency and equity effects of trade policy. Our results complement the set of standard inequality results in trade theory focused on functional rather than household inequality. We also find that the relative distributional impact of tariffs on welfare is conditional on the initial level of inequality.     

Bayesian estimation of social welfare and tax progressivity measures

This paper examines Bayesian methods of examining posterior distributions of inequality, concentration, tax progressivity and social welfare measures. Use is made of an explicit income distribution assumption and two alternative assumptions regarding the distribution of pre-tax mean incomes within each income group. The methods are applied to a simulated distribution of individual incomes and tax payments. It is possible to identify a minimum acceptable number of income classes to be used. The results suggest support for the use of group means in practical applications, particularly where large sample sizes are available. First version received: August 2000/Final version received: July 2001 RID="*" ID="*"  This research was supported by a Melbourne University Faculty of Economics and Commerce Research Grant. We should like to thank Bill Griffiths and two referees for comments on an earlier draft.     

Data envelopment analysis for measuring economic growth in terms of welfare beyond GDP

Recent discussions about the definition of growth in terms of welfare beyond GDP suggest that it is of urgent need to develop new approaches for measuring the economic performance of firms and national economies. The new concepts should simultaneously take into account economic as well as social and environmental goals. First we present several approaches to productivity measures. Then we extend the data envelopment analysis models with environment indicators in order to measure the so called eco-efficiency and social indicators to take into consideration social performance. For illustration, we perform the analysis of 30 European countries for the year 2010. The last section concerns itself with the possibilities of inter-temporal analysis of the proposed models and their use in ex-ante evaluation of different policy scenarios.     

An experimental study on individual choice, social welfare, and social preferences

We experimentally study subjects’ compliance with dominance relationships of income distributions in a ranking task. The experiment consisted of four different treatments: Lottery, individual choice, social preferences, and social planner. Our results suggest that people's risk attitudes do not adequately reflect their inequality attitudes. Uninvolved social planners exhibit randomization preferences, while self-interested social planners are generally more inequality averse and try to avoid extreme outcomes.     

Cooperation,stability and social welfare under majority rule

We resolve collective irrationality in the stability set, a solution concept for voting games proposed by Rubinstein (J Econ Theory 23:150–159, 1980) to resolve the well-known paradox of voting in the core. A lack of cooperation within winning coalitions prevents their members from eliminating an alternative globally less preferred to another one when they observe the rational behavior defining the stability set. Allowing for the possibility of accompanying a coalitional vote with a binding solidarity agreement is a natural response to this cooperation failure. This leads to a new standard of behavior and a new solution concept called stability set with binding solidarity agreement or S _c -stability set. It is shown that the S _c -stability set and a newly defined version of the Mas-Colell bargaining set for simple games are not comparable with respect to set inclusion. The S _c -stability set includes the core, is included in the stability set and contains only Pareto-optimal alternatives. When individual preferences are complete linear orders, the S _c -stability set is always non-empty.      

Entry regulation and social welfare with an integer problem

This paper elaborates on Salop (1979) who showed that the number of firms at free-entry equilibrium is excessive from the viewpoint of social welfare (excess-entry theorem). This paper considers an integer problem of the number of firms entering the market. We find that the excess-entry theorem does not hold true if the marginal production cost is increasing, while it holds true if the marginal production cost is constant. This result warns against the use of the excess-entry theorem for rationalizing entry regulation such as the notorious Japanese Large-Scaled Retail Act restricting the new entry of retailers.     

Size and distribution of incomes as determinants of social welfare

The paper is concerned with the relationship between the inequality of income distributions and the social welfare they imply. Starting-point is an ordering of income distributions in terms of inequality. Based on explicit value judgments about the trade-off between size and distribution of incomes an ordering in terms of social welfare is derived. The welfare functions representing this ordering allow a size-distribution split up. It is shown that the procedure can be reversed. This ordinal approach is considerably more flexible and less arbitrary than most methods proposed in the literature.     

Consumption smoothing and the welfare consequences of social insurance in developing economies

Studies of risk in developing economies have focused on consumption fluctuations as a measure of the value of insurance. A common view in the literature is that the welfare costs of risk and benefits of social insurance are small if income shocks do not cause large consumption fluctuations. We present a simple model showing that this conclusion is incorrect if the consumption path is smooth because individuals are highly risk averse. Hence, social safety nets could be valuable in low-income economies even when consumption is not very sensitive to shocks.