Money-metrics in local welfare analysis: Pareto improvements and equity considerations

• 成果类型: Article
• 署名作者: Schlee, Edward E.; Khan, M. Ali
• 署名单位: Arizona State University; Arizona State University-Tempe; Johns Hopkins University
• 刊物名称: JOURNAL OF ECONOMIC THEORY
• ISSN/ISSBN: 0022-0531
• DOI: 10.1016/j.jet.2023.105717
• 发表日期: 2023
• 关键词: Money-metric; Local cost-benefit analysis; Saddlepoint inequalities; Non-ordered preferences; equity; Samuelson's conjecture

摘要

We identify local Pareto improvements from a valuation equilibrium, and extend the results of Hirshleifer, Arrow-Lind, Milleron, and Radner on the evaluation of small projects to behavioral or nonstandard choice models. We use the sign of directional derivative of the sum of McKenzie-Samuelson money metrics to evaluate small projects, but, rather than assume its differentiability, furnish preference conditions that guarantee it. Our methods yield, as an unintended consequence, (i) a refutation of Samuelson's (1974) conjecture that the money metric is locally concave in a neighborhood of a demand point, thereby settling an issue open for five decades; and (ii) a substantive extension of the 1988 Blackorby-Donaldson theorem that the money metric is concave in consumption only if preferences are quasihomothetic. We explain some equity implications of our local-welfare result, and as part of the rehabilitation of money metrics, suggest a case for using a second-order approximation to a money metric for local welfare. We illustrate when our results hold and don't hold with several non-standard choice models.(c) 2023 Elsevier Inc. All rights reserved.