IBE316-5-2 - IBE 316 Economic Policy Stiglitz: Economics of...

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IBE 316 Economic Policy Stiglitz: Economics of the Public Sector Chapter 5: E¢ ciency and Equity (part 2) Keisuke OTSU Sophia University FLA Spring 2008 OTSU (Sophia University FLA) IBE 316 Spring 2008 1 / 17
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Overview Focus Questions 1 How do economists think systematically about how to make social choices when there are trade-o/s between the welfare of individuals? 2 How do economists think systematically about the trade-o/s between e¢ ciency and inequality? 3 As a practical matter, how do governments translate these general principles into a form which can actually be used in decision making? OTSU (Sophia University FLA) IBE 316 Spring 2008 2 ± 17
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Analyzing Social Choices The social choice should be made by maximizing the social welfare subject to the opportunity set opportunity set: utility possibility frontier social welfare: social indi/erence curve OTSU (Sophia University FLA) IBE 316 Spring 2008 3 ± 17
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Social Choices in Practice Government O¢ cials cannot derive utility possibilities frontiers or write down social welfare functions Instead they; 1 groups 2 ascertain whether the project is a Pareto improvement 3 If the project is not a Pareto improvement 1 undertake if it has net positive e¢ ciency e/ects and reduces inequality 2 do not undertake if it has negative e¢ ciency e/ects and increases inequality 3 measure the trade-o/ when if it has positive e¢ ciency e/ects and increases inequality and vice versa OTSU (Sophia University FLA) IBE 316 Spring 2008 4 ± 17
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This note was uploaded on 10/22/2011 for the course ECON 316 taught by Professor Keisukeotsu during the Spring '08 term at Sophia University.

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IBE316-5-2 - IBE 316 Economic Policy Stiglitz: Economics of...

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