A Contribution to the Theory of Welfare Accounting

Martin Weitzman

Scandinavian Journal of Economics, 2001, vol. 103, issue 1, 1-23

Abstract: A kind of “unified theory” is proposed as a dynamic generalization of the standard consumer‐surplus methodology for evaluating welfare changes. The “unified theory” allows rigorous dynamic welfare comparisons to be inferred between any two economic situations—from just knowing current incomes and observing a short‐run market demand schedule. Essentially, the change in present discounted future utility is exactly captured by the formula: difference in current income plus consumer surplus. This well‐known formula is thereby shown to cover a far wider class of welfare comparisons than is customarily treated in the textbook static case.

Date: 2001
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