Money Metrics Welfare Measures in Imperfect Markets under Growth

Chuan-Zhong Li () and Löfgren, Karl-Gustaf ()
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Löfgren, Karl-Gustaf: Department of Economics, Umeå University, Postal: S 901 87 Umeå, Sweden

No 694, Umeå Economic Studies from Umeå University, Department of Economics

Abstract: This paper shows how utility based welfare measures in dynamic general equilibrium under imperfect markets can be transferred into a money metrics. In order to do this, we need to price forward looking components measured in units of utility. The typical comprehensive quasi-static welfare measure contains a core that looks like a comprehensive (green) NNP component, as well as additional consumer surplus terms for both consumption goods and the externality. In addition, it contains a forward looking component with the discounted value of the marginal externality as the function to be integrated over time is also required. To accomplish this, we need a price index that is independent of the market basket, or to assume that the marginal utility of income is constant over time. With respect to local welfare measures it turn out that growth in traditional NNP will surprisingly work, provided that we condition on a positive average marginal rate of return of investment, and use an augmented genuine saving concept.

Keywords: Welfare measurement under growth; imperfect markets; utility versus money metrics (search for similar items in EconPapers)
JEL-codes: D61 D91 Q01 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba and nep-upt
Date: Written 2006-08-28
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Persistent link: http://EconPapers.repec.org/RePEc:hhs:umnees:0694

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