Behavioral Welfare Economics

74 Pages Posted: 15 Jan 2009 Last revised: 17 Mar 2010

See all articles by B. Douglas Bernheim

B. Douglas Bernheim

Stanford University - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: December 2008

Abstract

This paper discusses several competing proposals for general normative frameworks that would encompass non-standard models of choice. Most existing proposals equate welfare with well-being. Some assume that well-being flows from the achievement of well-defined objectives, and that those objectives also guide choices; the trick is to formulate a framework in which less-than-completely coherent choice patterns reveal the unobserved objectives. Others are predicated on the contention that well-being, and hence welfare, is directly measurable. Both of those approaches encounter serious conceptual difficulties. An alternative approach, developed by Bernheim and Rangel [2009], defines welfare directly in terms of choice. It entails a generalized welfare criterion that respects choice directly, without requiring any rationalization involving potentially unverifiable assumptions concerning underlying objectives and their relationships to choice. Because useful behavioral theories generally envision a substantial degree of underlying coherence in behavior, that criterion leads to a rich and tractable normative framework.

Suggested Citation

Bernheim, B. Douglas, Behavioral Welfare Economics (December 2008). NBER Working Paper No. w14622. Available at SSRN: https://ssrn.com/abstract=1327244

B. Douglas Bernheim (Contact Author)

Stanford University - Department of Economics ( email )

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