WELFARE ECONOMY OF NEPAL

CHANDRA KAMAL KHADKA

36-2021 MA, SECOND SEMESTER
ECON-555 MICROECONOMICS II
INDIVIDUAL AND SOCIAL WELFARE

•WELFARE means Result of satisfaction of wants. A/c Prof. J.K.

Mehata(1970) -a man has greater welfare if large numbers of his wants have
been satisfied.
No satisfaction Pain, Satisfaction Happiness, associated with welfare.
•It indicates overall well being of people in the society; and can be classified
as: Economic(Access to physical amenities, health, financial well
being,prosperity etc) and Non economic(Happiness, law and order, personal
relation. literacy etc) welfare.
 IT IS DIFFICULT TO MEASURE WELFARE OBJECTIVELY, IN CARDINAL
TERMS,SO
• Economists measure individual welfare in ordinal
terms by observing the choices of individuals.
• For e.g. if an individual chooses A rather than B,
His welfare is greater in A than in B.
• Welfare State- Establishment of welfare state is the
fundamental objectives of modern democratic
government. In order to achieve this objective the
state attempts to satisfy the wants of each and every
citizen of the society.
• Economic Efficiency- State of resource allocation the
maximize the social welfare.
• While judging the group welfare or social welfare, it
involves value judgement and interpersonal comparison of
utility.
• Propositions of social welfare can’t be derived from choice
of individuals comprising the society because they have
different choices.
• The vital issues in welfare economy are concerned with
social welfare and advising criteria to judge it. Therefore
welfare economy can’t be purely objective or free from
value judgement.
• Value Judgement- Conceptions or ethical beliefs of the
people about what is good or bad, no any scientific law or
logic.
WELFARE ECONOMICS

• It is branch of Economics that studies the impacts of resource allocation, economic

policies and organization on individual and social well being.
• It is directly related to the study of economic efficiency and income distribution, as
well as how these factors affect economic activity in society.
• In welfare economics, attempts are made to establish criteria or norms the serve as basis
for recommending alternative economic state, policies and organization which will
increase/maximize the social welfare.
CONTINUE…

• A microeconomic comparison of consumer surplus and producer surplus under different

market structures and conditions constitutes a basic version of welfare economics.
 CONCEPT

The main ideas behind welfare economics (i.e. the belief that competitive market economy
provides an efficient means of allocating scarce resources) can be traced all the way back to
the theory of Adam Smith who argued in “Wealth of Nation” that-
• The individuals who pursue their self interest, operating through market promote the
welfare of others and of society as a whole. The individual consumers try to maximize
their own satisfaction and producers try to maximize their own profit. The invisible forces
of market system led them to promote the interest of society as a whole which is not a
part of their intention.
A.C. PIGUO
(KNOWN AS FATHER OF WELFARE ECONOMICS)

Prof. Pigou had a dual criterion for detecting the increase in social welfare.
• First, he measured the economic welfare of the society in money value and
thus, given the supply of resources, an increase in national dividend
meant an increase in social welfare.
• Second, he favored an income equalization policy and therefore,
reorganization of the economy which increases the share of the poor i.e.
equal distribution of national income.
WORLD BANK

• Measurement of practical welfare involves the concepts of income, real

income, per capita real income, and occasionally a measure of
inequality; the economic approach, however, works with such concepts as
preferences, utility, and social welfare functions.
INDICATORS OF WELFARE ECONOMY
IN NEPALESE CONTEXT
• GDP - More GDP per capita means more income to the people which they can spend on their basic
necessities. More government expenditure for fulfillment of public requirements.
• HDI - The Human Development Index examines three important criteria of economic development
and welfare (life expectancy, education and income levels) 
• Real Income – Influencing potential consumption
• Physical Quality of Living – Access to healthcare, transportation, communication, education,
recreation
• Life Expectancy – Long life, greater welfare
• Employment Rate – Unemployment costs significant
• Housing – For safety and dignity
• Consumption - expenditure is probably the most common and preferred welfare indicator
INDICATORS

• Environment – Pollution may damage health, living standard and productivity of natural
resources
• Social Security – Protection from risk and Assistance for old aged, lonely women, disables,
children, victims of crime, marginalized society, poor and helpless people.
• Fulfillment of Fundamenal rights - Right to Equality, Right to Freedom, Right against
Exploitation, Right to solidarity, Social and Cultural Rights, Right to Constitutional Remedies etc.
• Ownership of property – Land, House, Livestock, Intellectual property promote economic
activities
3 CRITERIA OR CONCEPTS OF SOC WEL

i) Dictatorial of Paternalist Concept

Social welfare increases when paternal authority or the dictator of state thinks it so. Uses its
own ideas.
ii) Paretian Concept
A/c Vilfredo Pareto, Welfare of the society is the sum total of the welfare of different
individuals comprising it. If some persons are made better off and none worse off, social
welfare increase and if some are made worse off and none better off, it decreases. But if some
are made better off and some worse off then we can not know what has happened to the
welfare of society. It believes it is good to make somebody better off while making nobody
worse off. It rules out Interpersonal comparison and has limited value in real world,
III) SOCIAL WELFARE FUNCTION

• Propounders Bergson and Samuelson of this concept opine that change in

social welfare can not be assessed without making interpersonal
comparison of utility and value judgement, so this concept is able to judge
the welfare implications of even those changes in economic organization
and policy that make some people better off and others worse off.
 COMPENSATION PRINCIPLE AND NEW WELFARE ECONOMICS

• Pareto Criterion and concept of Pareto Optimality doesn’t embrace those changes in
economic state which make some better off and other worse off.
• Kaldor and Hicks propounded a welfare criterion, which is known as compensation
principle to judge such changes. They rehabilitated welfare economics from damaging
criticism of Lord Robbins and founded a New Welfare Economics free from value
judgement or interpersonal comparison of utility or welfare.
• A/c this compensation principle if a change in economic organization increase the welfare
of some and reduces the others, but those who gain in welfare are able to compensate the
losers and still be better off than before, the change in economic organization will increase
the social welfare.
THANK YOU
HAVE A NICE DAY