Welfare analysis under uncertainty |
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Authors: | John M Marshall |
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Institution: | 1. Santa Barbara, University of California, 1484 Willow Street, 92106, San Diego, CA
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Abstract: | This article extends Bergsonian welfare analysis to an environment of uncertainty where preferences are not expected utility and may even be state-inconsistent. Given state-inconsistent preferences, the familiar notion of ex ante efficiency is also state-inconsistent. Other efficiency and welfare concepts achieve state consistency by ignoring entirely the prospective preferences of consumers. The framework developed in this article allows welfare judgments to be state-consistent while respecting prospective and conditional preferences. The theory is called inclusive welfare. An application to optimum insurance subsidies illustrates the practical use of the concept. |
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