By S. K. Nath (auth.)
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Additional resources for A Perspective of Welfare Economics
Often an instrument affects more than one objective, just as an objective may be affected by more than one instrument. Objectives might be all fixed or all flexible, or a combination of the two kind. e. when certain specified magnitudes for them all must be attained), the main policy problem is to examine the compatibility of the fixed targets with the instruments. This can be a most illuminating exercise; for an interesting illustration of this see chapter 8 of Peacock and Shaw : compatibility will not be achieved if the targets and instruments are not equal in number.
G. ) which commands a high price, makes the need for redistributive measures a recurring one. A great many, if not all, of policy measures for redistributing incomes take the form of recurring direct or indirect taxes and subsidies. Each of these break some necessary condition or other for Paretian optimality. Even . e. the feasible social optimum, may be a non-Paretian optimal arrangement, since even a Pareto-type social welfare function does not necessarily make the distribution of income, leisure and wealth irrelevant to social welfare.
Nsuring roughly uniform divergences (if divergences cannot be removed) between substitutes but compensating divergences between complementary goods. This way ,of proceeding in a situation of second-best constraints was suggested by Mishan . Similar rough methods of achieving second-best optimality - if the additional contraints cannot be neutralised - can be devised for other departments of economic policy, such as foreign trade and public finance, etc. 5 EXTERNALITIES Externality is the name given to a certain kind of favourable or unfavourable effect of one economic agent (an individual or a firm) on the production, income, leisure, wealth, or welfare of another economic agent - the ifJect is such that the present techniques, customs or laws do not permit the payment or receipt of a price for the benefit or the harm that comes about through that if[ect.
A Perspective of Welfare Economics by S. K. Nath (auth.)