GWLecture9 - Part IIa Paper 1 General Equilibrium and...

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1 Part IIa: Paper 1 General Equilibrium and Welfare Economics Dr Sönje Reiche
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2 First half of course … To show how to analyse problems in a general equilibrium framework Varian Ch. 31, 32 Cowell Ch. 6.3, 6.4, 7 To use this framework to address questions in trade Krugman & Obstfeld Ch. 2, 3, 4, 6, 8 NOT Ch. 5, 7, 9, 10 and further Heffernan & Sinclair Ch. 2 But: simplistic welfare analysis and lack of consideration of distributional consequences
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3 Motivation Casual use of Social Indifference curves Where do these come from? How are the interests of different individuals weighed up in creating such social indifference curves? With trade, some winners and some losers Want a mechanism for evaluating policy Normative issues (rather than positive analysis of GE)
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4 Outline: Welfare Economics Concepts of Welfare Economics Basic Value Judgements Bergson-Samuelson Social Welfare Functions Utilitarianism vs Rawlsian SWF Books Varian Ch. 33 Cowell Ch. 9.1, 9.4, 9.5
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5 Concepts of Welfare Economics Want “social preference ordering” over states complete (defined over all states) transitive z x z y y x Less controversial at individual level, but what does this imply at society level?
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6 Distinguish: Social welfare function (which corresponds to individual utility function) Mechanism for achieving this social welfare function (through combining individual preferences)
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