Welfare Analysis under Uncertainty

John M Marshall

Journal of Risk and Uncertainty, 1989, vol. 2, issue 4, 385-403

Abstract: This article extends Bergsonian welfare analysis to an environment of uncertainty where preferences are not expected utility and may even be state-inconsistent. Given state-inconsistent preferences, the familiar notion of ex ante efficiency is also state-inconsistent. Other efficiency and welfare concepts achieve state consistency by ignoring entirely the perspective preferences of consumers. The framework developed in this article allows welfare judgments to be state-consistent while respecting prospective and conditional preferences. The theory is called inclusive welfare. An application to optimum insurance subsidies illustrates the practical use of the concept. Copyright 1989 by Kluwer Academic Publishers

Date: 1989
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