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Beyond GDPMeasuring Welfare and Assessing Sustainability$
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Marc Fleurbaey and Didier Blanchet

Print publication date: 2013

Print ISBN-13: 9780199767199

Published to Oxford Scholarship Online: May 2013

DOI: 10.1093/acprof:oso/9780199767199.001.0001

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Equivalent Income, or How to Value What Has No Price

Equivalent Income, or How to Value What Has No Price

(p.115) Chapter 4 Equivalent Income, or How to Value What Has No Price
Beyond GDP

Marc Fleurbaey

Didier Blanchet

Oxford University Press

This chapter examines an approach which involves willingness-to-pay instead of prices and shadow prices. It involves measuring individual well-being by “equivalent income,” also called “money-metric utility,” and using this measure in social welfare functions of the classical form. The chapter is organized as follows. Section 4.1 recalls the definition of money-metric utilities and equivalent incomes, and Section 4.2 explains the various criticisms raised against it by social choice theorists. Section 4.3 shows how the notion can be viewed under a new light in the context of the theory of fair allocation and the theory of fair social choice, and how this makes it possible to rebut or at least downplay the criticisms listed in Section 4.2. Section 4.4 introduces a new decomposition of social welfare that makes use of equivalent incomes, while Section 4.5 concludes.

Keywords:   willingness-to-pay, individual well-being, equivalent income, social welfare, fair allocation, fair social choice

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