TY - JOUR
T1 - MONEY METRICS IN APPLIED WELFARE ANALYSIS
T2 - A SADDLEPOINT REHABILITATION
AU - Schlee, Edward E.
AU - Khan, M. Ali
N1 - Publisher Copyright:
© (2021) by the Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association
PY - 2022/2
Y1 - 2022/2
N2 - Once a popular tool to estimate welfare changes, the money metric of McKenzie-Samuelson gradually faded from use after welfare theorists and practitioners argued that it led to inegalitarian recommendations. We prove that, at a competitive equilibrium price, any associated competitive allocation maximizes the money-metric sum; and, as is well understood, competitive allocations can be egalitarian or inegalitarian. The result applies to economies in which individual demand is not rationalizable by any binary relation, let alone a binary relation representable by a utility function, a behavioral setting considered, for example, in Bernheim–Rangel.
AB - Once a popular tool to estimate welfare changes, the money metric of McKenzie-Samuelson gradually faded from use after welfare theorists and practitioners argued that it led to inegalitarian recommendations. We prove that, at a competitive equilibrium price, any associated competitive allocation maximizes the money-metric sum; and, as is well understood, competitive allocations can be egalitarian or inegalitarian. The result applies to economies in which individual demand is not rationalizable by any binary relation, let alone a binary relation representable by a utility function, a behavioral setting considered, for example, in Bernheim–Rangel.
UR - http://www.scopus.com/inward/record.url?scp=85112760073&partnerID=8YFLogxK
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U2 - 10.1111/iere.12535
DO - 10.1111/iere.12535
M3 - Article
AN - SCOPUS:85112760073
SN - 0020-6598
VL - 63
SP - 189
EP - 210
JO - International Economic Review
JF - International Economic Review
IS - 1
ER -