Welfare measurement in imperfect markets: a growth theoretical approach

Abstract

This work develops a welfare economic theory of social accounting, with a particular emphasis on valuation problems in imperfectly competitive market economies. It extends the concept of Net National Product (NNP) to a comprehensive “green NNP” that includes environmental quality, natural resources, and human capital, examining the conditions under which such a measure serves as an exact indicator of welfare. The analysis departs from foundational results in perfect markets by incorporating complexities such as technological change, market imperfections (including externalities and imperfect competition), and policy-induced distortions like distortionary taxation. It explores how these factors, which often render economic systems non-autonomously time dependent, necessitate modifications to traditional welfare measures. The study also addresses the practical challenges of unit measurement, proposing money-metric equivalents to utility-based measures and considering the role of consumer surplus. Further, it investigates cost-benefit analysis in dynamic general equilibrium models, the implications of transboundary environmental problems, the impact of distributional objectives and unemployment, and the extension of welfare measurement principles to stochastic environments. Numerical applications and approximations of Pigouvian taxes are considered to bridge theory and practice. – AI-generated abstract.