Welfare - Vol. 2, Volume 2
This volume presents an approach to the evaluation of economic policies through the econometric modeling of aggregate consumer behavior. While the preferences of individual consumers are revealed by their market choices, these preferences can be recovered only by econometric methods, not through the index numbers used in the official statistics. The richer and more robust methodology presented in this volume provides a fruitful point of departure for future policy evaluations.The econometric approach replaces ordinal measures of individual welfare that cannot be compared among individuals with cardinal measures that can. These are combined into an indicator of social welfare that reflects principles of horizontal and vertical equity. This approach unifies the measurement of poverty, inequality, and cost and standard of living. It extends the scope of normative economics to a broader range of issues in the evaluation of economic and social policies.
About the Author
Dale W. Jorgenson is Samuel W. Morris University Professor of Economics at Harvard University.
"This is another important book by the author, who is a very distinguished economist and econometrician. It proposes new concepts of individual welfare and of social welfare, which can be quantitatively measured by using econometric information that the author has provided. Of course, the proposed mathematical model has to make some strong, and inherently controversial, theoretical assumptions. But they may be a price worth paying for being able to use this remarkable analytical construction."
—John C. Harsanyi, Haas School of Business, University of California, Berkeley; Nobel Laureate in Economics, 1994
"Few economists have done more to link economic theory to econometrics than Dale Jorgenson. In this book, he relates the analysis of individual and social welfare to the econometric estimation of consumer behavior. The result is a wealth of both theoretical and empirical knowledge about the impact of policy reforms on inequality and poverty."
—Mervyn King, Executive Director and Chief Economist, Bank of England
"This powerful body of work bridges the gap between the common practice of policy inquiry and the nihilism of traditional social choice theory. To make normative policy recommendations possible, Jorgenson shows how to move beyond what Arrow proved was impossible. Aggregate welfare is more than defined and measured here; it is greatly enhanced."
—William H. Hogan, Thornton Bradshaw Professor of Public Policy and Management, Kennedy School of Government, Harvard University