Second best welfare economics in the mixed economy

The general problem of measuring welfare for large government projects is considered in a context where the government may interfere with the private market sector in a variety of ways. Measures are decomposed into a pure efficiency part and a pure equity part and it is shown that the efficiency part is measured by integrals under ‘uncompensated’ market demand functions. It is also shown that the efficiency part may be further decomposed into second best contributions due to commodity taxation, monopoly power and quantity constraints.