MONEY METRICS IN APPLIED WELFARE ANALYSIS: A SADDLEPOINT REHABILITATION

Once a popular tool to estimate welfare changes, the money metric of McKenzie‐Samuelson gradually faded from use after welfare theorists and practitioners argued that it led to inegalitarian recommendations. We prove that, at a competitive equilibrium price, any associated competitive allocation max...

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Bibliographic Details
Published in:International economic review (Philadelphia) 2022-02, Vol.63 (1), p.189-210
Main Authors: Schlee, Edward E., Khan, M. Ali
Format: Article
Language:English
Subjects:
Economic theory
Egalitarianism
Money
Rehabilitation
Theorists
Utility functions
Welfare
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Summary:Once a popular tool to estimate welfare changes, the money metric of McKenzie‐Samuelson gradually faded from use after welfare theorists and practitioners argued that it led to inegalitarian recommendations. We prove that, at a competitive equilibrium price, any associated competitive allocation maximizes the money‐metric sum; and, as is well understood, competitive allocations can be egalitarian or inegalitarian. The result applies to economies in which individual demand is not rationalizable by any binary relation, let alone a binary relation representable by a utility function, a behavioral setting considered, for example, in Bernheim–Rangel.
ISSN:0020-6598
1468-2354
DOI:10.1111/iere.12535