Welfare economics

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6 Citations (Scopus)


In this article, the conditions for Pareto optimality are outlined; why the first theorem in welfare economics is true is explained. Despite the required conditions being unrealistic, the first theorem is very important as it shows the working of the market mechanism and serves as a benchmark, allowing us to examine divergences caused by, say, external costs. Coase's argument against the Pigovian taxation of external costs, and of pollution, is based on all-or-nothing comparison ignoring an important asymmetry. Arrow's impossibility theorem and a 90% solution to the paradox of interpersonal cardinal utility are discussed.

Original languageEnglish
Title of host publicationInternational Encyclopedia of the Social & Behavioral Sciences
EditorsJames D. Wright
Place of PublicationNetherlands
Number of pages7
ISBN (Electronic)9780080970875
ISBN (Print)9780080970868
Publication statusPublished - 2015
Externally publishedYes


  • Arrow's impossibility theorem
  • Coase
  • Economics
  • Efficiency
  • Environmental economics
  • Equality
  • External effects
  • Happiness
  • Pareto optimality
  • Pigovian tax
  • Preference
  • Second best
  • Social choice
  • Welfare
  • Welfare economics

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