The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Welfare Economics

  • Allan M. Feldman
Reference work entry


Welfare economics attempts to define and measure the ‘welfare’ of society as a whole. It tries to identify which economic policies lead to optimal outcomes, and, where necessary, to choose among multiple optima. This article answers three fundamental qsts with three fundamental theorems. In a competitive economy, will an equilibrium outcome be optimal? Can any optimal outcome be achieved by a modified market mechanism? Is there a reliable way to measure social welfare, or to derive the preferences of society from the preferences of individuals? The negative answer to the third question is partly overcome by the theory of implementation.


Arrow social welfare function Arrow’s th Bergson, A. Central planning Command economy Common good Compensation tests Competitive equilibrium Condorcet, Marquis de Consumer surplus Corn Laws Decentralized socialism Externalities First fundamental theorem of welfare economics Implementation Industrial policy Interpersonal utility comparisons Kaldor, N. Laissez-faire Lange, O. R. Lump-sum taxes Lump-sum transfers Majority rule Mechanism design Mises, L. E. von Nash strategy Pareto efficiency Partial equilibrium Pigou, A. C. Pigouvian taxes Plurality voting Preference misrepresentation Preference profiles Production plans Scitovsky, T. Second fundamental theorem of welfare economics Smith, A. Social choice function Socialism Strategic behaviour Third fundamental theorem of welfare economics Voting Voting cycles Voting paradoxes Welfare economics 

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© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • Allan M. Feldman
    • 1
  1. 1.