WELFARE ECONOMICS

Meaning of Welfare Economics

Welfare economics is a branch of economics that uses microeconomic

techniques to evaluate well-being from allocation of productive factors as to

desirability and economic efficiency within an economy, often relative to

competitive general equilibrium (Arrow, 1951). It analyzes social welfare,

however measured, in terms of economic activities of the individuals that

compose the theoretical society considered. Accordingly, individuals, with

associated economic activities, are the basic units for aggregating to social

welfare, whether of a group, a community, or a society, and there is no "social

welfare" apart from the "welfare" associated with its individual units.

Welfare economics typically takes individual preferences as given and stipulates

a welfare improvement in Pareto efficiency terms from social state A to social

state B if at least one person prefers B and no one else opposes it. There is no

requirement of a unique quantitative measure of the welfare improvement

implied by this. Another aspect of welfare treats income/goods distribution,

including equality, as a further dimension of welfare (Arrow and Gérard, 2002).

Social welfare refers to the overall welfare of society. With sufficiently strong

assumptions, it can be specified as the summation of the welfare of all the

individuals in the society. Welfare may be measured either cardinally in terms of

"utils" or dollars, or measured ordinally in terms of Pareto efficiency. The

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cardinal method in "utils" is seldom used in pure theory today because of

aggregation problems that make the meaning of the method doubtful, except on

widely challenged underlying assumptions. In applied welfare economics, such

as in cost-benefit analysis, money-value estimates are often used, particularly

where income-distribution effects are factored into the analysis or seem unlikely

to undercut the analysis.

The capabilities approach to welfare argues that freedom - what people are free

to do or be - should be included in welfare assessments, and the approach has

been particularly influential in development policy circles where the emphasis

on multi-dimensionality and freedom has shaped the evolution of the Human

Development Index. Other classifying terms in welfare economics include

externalities, equity, justice, inequality, and altruism (Atkinson, 1975).

Approaches to Welfare Economics

There are two mainstream approaches to welfare economics: the early

Neoclassical approach and the New welfare economics approach. The early

Neoclassical approach was developed by Edgeworth, Sidgwick, Marshall, and

Pigou. It assumes the following:

 Utility is cardinal, that is, scale-measurable by observation or judgment.

 Preferences are exogenously given and stable.

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 Additional consumption provides smaller and smaller increases in utility

(diminishing marginal utility).

 All individuals have interpersonally comparable utility functions (an

assumption that Edgeworth avoided in his Mathematical 'Psychics).

With these assumptions, it is possible to construct a social welfare function

simply by summing all the individual utility functions. The New Welfare

Economics approach is based on the work of Pareto, Hicks, and Kaldor. It

explicitly recognizes the differences between the efficiency aspect of the

discipline and the distribution aspect and treats them differently. Questions of

efficiency are assessed with criteria such as Pareto efficiency and the Kaldor-

Hicks compensation tests, while questions of income distribution are covered in

social welfare function specification. Further, efficiency dispenses with cardinal

measures of utility, replacing it with ordinal utility, which merely ranks

commodity bundles (with an indifference-curve map, for example).

Conditions for Efficiency

Situations are considered to have distributive efficiency when goods are

distributed to the people who can gain the most utility from them. Many

economists use Pareto efficiency as their efficiency goal. According to this

measure of social welfare, a situation is optimal only if no individuals can be

made better off without making someone else worse off. This ideal state of

affairs can only come about if four criteria are met:

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 The marginal rates of substitution in consumption are identical for all

consumers. This occurs when no consumer can be made better off without

making others worse off.

The marginal rate of transformation in production is identical for all products.

This occurs when it is impossible to increase the production of any good

without reducing the production of other goods.

 The marginal resource cost is equal to the marginal revenue product for all

production processes. This takes place when marginal physical product of a

factor must be the same for all firms producing a good.

 The marginal rates of substitution in consumption are equal to the marginal

rates of transformation in production, such as where production processes must

match consumer wants.

Conditions for Inefficiency

There are a number of conditions that, most economists agree, may lead to

inefficiency. They include:

 Imperfect market structures, such as a monopoly, monopsony, oligopoly,

oligopsony, and monopolistic competition.

 Factor allocation inefficiencies in production theory basics.

 Market failures and externalities; there is also social cost.

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 Price discrimination and price skimming.

 Asymmetric information, principal–agent problems.

 Long run declining average costs in a natural monopoly.

 Certain types of taxes and tariffs.

To determine whether an activity is moving the economy towards Pareto

efficiency, two compensation tests have been developed. Any change usually

makes some people better off while making others worse off, so these tests ask

what would happen if the winners were to compensate the losers. Using the

Kaldor criterion, an activity will contribute to Pareto optimality if the maximum

amount the gainers are prepared to pay is greater than the minimum amount that

the losers are prepared to accept. Under the Hicks criterion, an activity will

contribute to Pareto optimality if the maximum amount the losers are prepared

to offer to the gainers in order to prevent the change is less than the minimum

amount the gainers are prepared to accept as a bribe to forgo the change. The

Hicks compensation test is from the losers' point of view, while the Kaldor

compensation test is from the gainers' point of view. If both conditions are

satisfied, both gainers and losers will agree that the proposed activity will move

the economy toward Pareto optimality. This is referred to as Kaldor-Hicks

efficiency or the Scitovsky criterion.

A simplified Seven-equation Model

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The basic welfare economics problem is to find the theoretical maximum of a

social welfare function, subject to various constraints such as the state of

technology in production, available natural resources, national infrastructure,

and behavioural constraints such as consumer utility maximization and producer

profit maximization. In the simplest possible economy this can be done by

simultaneously solving seven equations. This simple economy would have only

two consumers (consumer 1 and consumer 2), only two products (product X and

product Y), and only two factors of production going into these products (labour

(L) and capital (K)). The model can be stated as: Maximize social welfare:

W=f(U1, U2) subject to the following set of constraints: K = Kx + Ky (The

amount of capital used in the production of goods X and Y)

L = Lx + Ly (The amount of labour used in the production of goods X and Y)

X = X(Kx Lx) (The production function for product X)

Y = Y(Ky Ly) (The production function for product Y)

U1 = U1(X1 Y1) (The preferences of consumer 1)

U2 = U2(X2 Y2) (The preferences of consumer 2)

The solution to this problem yields a Pareto optimum

ECONOMIC GROWTH THEORIES

Meaning of Economic Growth

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Economic growth is the increase in quantity of the goods and services produced

by an economy over time. It is conventionally measured as the percent rate of

increase in real gross domestic product, or real GDP (IMF, 2012). Of more

importance is the growth of the ratio of GDP to population (GDP per capita),

which is also called per capita income. An increase in per capita income is

referred to as intensive growth. GDP growth caused only by increases in

population or territory is called extensive growth (Bjork, 1999).

Growth is usually calculated in real terms – i.e., inflation-adjusted terms – to

eliminate the distorting effect of inflation on the price of goods produced. In

economics, "economic growth" or "economic growth theory" typically refers to

growth of potential output, i.e., production at "full employment".

Factors Affecting Economic Growth

You should note that the primary driving force of economic growth is the

growth of productivity, which is the ratio of economic output to inputs (capital,

labour, energy, materials and services (KLEMS)). Increases in productivity

lower the cost of goods, which is called a shift in supply. Kendrick (1961)

estimate showed that three-quarters of increase in U.S. per capita GDP from

1889-1957 was due to increased productivity. Over the 20th century the real

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price of many goods fell by over 90%. Lower prices create an increase in

aggregated demand, but demand for individual goods and services are subject to

diminishing marginal utility. (See Salter cycle). Additional demand is created by

new or improved products (Rosenberg, 1982; Ayres, 1989). Demographic

factors influence growth by changing the employment to population ratio and

the labor force participation rate (Bjork 1999). Other factors include the

quantity and quality of available natural resources (Kendrick, 1980), including

land (George, 1879).

Classical Growth Theory

Adam Smith wrote The Wealth of Nations. As such, the formation of the

classical growth theory began in the 18th century with the critique of

mercantilism, especially by the physiocrats and with the Scottish Enlightenment

thinkers such as David Hume and Adam Smith, and the foundation of the

discipline of modern political economy. Adam Smith noted the huge gains in

productivity achieved by the division of labour in the famous example of the pin

factory. David Ricardo argues that trade benefits a country, because if one can

buy an imported good more cheaply, it means there is more profitable work to

be done here. This theory of comparative advantage would be the central basis

for arguments in favour of free trade as an essential component of growth.

The Neoclassical Growth Model

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The notion of growth as increased stocks of capital goods was codified as the

Solow-Swan Growth Model, which involved a series of equations that showed

the relationship between labour-time, capital goods, output, and investment.

According to this view, the role of technological change became crucial, even

more important than the accumulation of capital. This model, developed by

Robert Solow (Solow, 1956) and Trevor Swan in the 1950s, was the first

attempt to model long-run growth analytically. This model assumes that

countries use their resources efficiently and that there are diminishing returns to

capital as labour increases. From these two premises, the neoclassical model

makes three important predictions. First, increasing capital relative to labour

creates economic growth, since people can be more productive given more

capital. Second, poor countries with less capital per person grow faster because

each investment in capital produces a higher return than rich countries with

ample capital. Third, because of diminishing returns to capital, economies

eventually reach a point where any increase in capital no longer creates

economic growth. This point is called a steady state.

The model also notes that countries can overcome this steady state and continue

growing by inventing new technology. In the long-run, output per capita

depends on the rate of saving, but the rate of output growth should be equal for

any saving rate. In this model, the process by which countries continue growing

despite the diminishing returns is "exogenous" and represents the creation of

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new technology that allows production with fewer resources. Technology

improves, the steady state level of capital increases, and the country invests and

grows.

Linear Stages of Growth Model

The linear stages of growth model is an economic model which is heavily

inspired by the Marshall Plan which was used to revitalize Europe’s economy

after World War II. It assumes that economic growth can only be achieved by

industrialization. Growth can be restricted by local institutions and social

attitudes, especially if these aspects influence the savings rate and investments.

The constraints impeding economic growth are thus considered by this model to

be internal to society (Khun, 2008). According to the linear stages of growth

model, a correctly designed massive injection of capital coupled with

intervention by the public sector would ultimately lead to industrialization and

economic development of a developing nation (Rostow – 1960). The Rostow's

stages of growth model is the most well-known example of the linear stages of

growth model (ibid). Walt W. Rostow identified five stages through which

developing countries had to pass to reach an advanced economy status: (1)

Traditional society, (2) Preconditions for take-off, (3) Take-off, (4) Drive to

maturity, (5) Age of high mass consumption. He argued that economic

development could be led by certain strong sectors; this is in contrast to for

instance Marxism which states that sectors should develop equally. According

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to Rostow’s model, a country needed to follow some rules of development to

reach the take-off: (1) The investment rate of a country needs to be increased to

at least 10% of its GDP, (2) One or two manufacturing sectors with a high rate

of growth need to be established, (3) An institutional, political and social

framework has to exist or be created in order to promote the expansion of those

sectors.

The Rostow model has serious flaws, of which the most serious are: (1) The

model assumes that development can be achieved through a basic sequence of

stages which are the same for all countries, a doubtful assumption; (2) The

model measures development solely by means of the increase of GDP per

capita; (3) The model focuses on characteristics of development, but does not

identify the causal factors which lead development to occur. As such, it neglects

the social structures that have to be present to foster development. Economic

modernization theories such as Rostow's stages model have been heavily

inspired by the Harrod-Domar model which explains in a mathematical way the

growth rate of a country in terms of the savings rate and the productivity of

capital. Heavy state involvement has often been considered necessary for

successful development in economic modernization theory; Paul Rosenstein-

Rodan, Ragnar Nurkse and Kurt Mandelbaum argued that a big push model in

infrastructure investment and planning was necessary for the stimulation of

industrialization, and that the private sector would not be able to provide the

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resources for this on its own (Scribd.com, 2010). Another influential theory of

modernization is the dual-sector model by Arthur Lewis. In this model Lewis

explained how the traditional stagnant rural sector is gradually replaced by a

growing modern and dynamic manufacturing and service economy (World

Bank, 1994).

Because of the focus on the need for investments in capital, the Linear Stages of

Growth Models are sometimes referred to as suffering from ‘capital

fundamentalism’ (Swarthmore, 2008).

Salter Cycle

According to the Salter cycle, economic growth is enabled by increases in

productivity, which lowers the inputs (labour, capital, material, energy, etc.) for

a given amount of product (output) (Kendrick, 1961). Lowered cost increases

demand for goods and services, which also results in capital investment to

increase capacity. New capacity is more efficient because of new technology,

improved methods and economies of scale. This leads to further price

reductions, which further increases demand, until markets become saturated due

to diminishing marginal utility.

Endogenous Growth Theory

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Growth theory advanced again with theories of economist Paul Romer and

Robert Lucas, Jr. in the late 1980s and early 1990s.

Unsatisfied with Solow's explanation, economists worked to "endogenize"

technology in the 1980s. They developed the endogenous growth theory that

includes a mathematical explanation of technological advancement (Field, 2004

and 2007). This model also incorporated a new concept of human capital, the

skills and knowledge that make workers productive. Unlike physical capital,

human capital has increasing rates of return. Therefore, overall there are

constant returns to capital, and economies never reach a steady state. Growth

does not slow as capital accumulates, but the rate of growth depends on the

types of capital a country invests in. Research done in this area has focused on

what increases human capital (e.g. education) or technological change (e.g.

innovation) (Elhanah, 2004).

Unified growth theory

Unified growth theory was developed by Oded Galor and his co-authors to

address the inability of endogenous growth theory to explain key empirical

regularities in the growth processes of individual economies and the world

economy as a whole. Endogenous growth theory was satisfied with accounting

for empirical regularities in the growth process of developed economies over

the last hundred years. As a consequence, it was not able to explain the

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qualitatively different empirical regularities that characterized the growth

process over longer time horizons in both developed and less developed

economies. Unified growth theories are endogenous growth theories that are

consistent with the entire process of development, and in particular the

transition from the epoch of Malthusian stagnation that had characterized most

of the process of development to the contemporary era of sustained economic

growth (Galor, 2005).

The Big Push

In theories of economic growth, the mechanisms that let growth take place and

its main determinants are abundant. One popular theory in the 1940s, for

example, was that of the Big Push developed by Paul Narcyz Rosenstein-Rodan

(1902-1985), which suggested that countries needed to jump from one stage of

development to another through a virtuous cycle, in which large investments in

infrastructure and education coupled with private investments would move the

economy to a more productive stage, breaking free from economic paradigms

appropriate to a lower productivity stage.

Schumpeterian Growth

Schumpeterian growth is an economic theory named after the 20th-century

Austrian economist Joseph Schumpeter. Unlike other economic growth theories,

his approach explains growth by innovation as a process of creative destruction

that captures the dual nature of technological progress: in terms of creation,

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entrepreneurs introduce new products or processes in the hope that they will

enjoy temporary monopoly-like profits as they capture markets. In doing so,

they make old technologies or products obsolete.

This is the destruction referred to by Schumpeter, which could also be referred

to as the annulment of previous technologies, which makes them obsolete, and

"...destroys the rents generated by previous innovations." (Aghion, 2002:855-

822). A major model that illustrates Schumpeterian growth is the Aghion-Howitt

model (Aghion and Howitt, 1992).

MODERN THEORIES OF DEVELOPMENT

Development theories attempt to explain the conditions that are necessary for

development to occur, and weigh up the relative importance of particular

conditions. Development theory is a conglomeration or a collective vision of

theories about how desirable change in society is best achieved. Such theories

draw on a variety of social science disciplines and approaches (Robert, 1986).

Early theories focused on understanding economic growth, and attempted to

find general determinants of growth that could be applied to any instance under

consideration. By looking at patterns of growth the hope was to discover some

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of the laws or principles which govern growth at all times and in all countries.

Modern theories tend to accept that conditions for growth change over time, and

are often more critical of the attempts to generate one-size-fits-all growth

theories (ibid, 1986).

The Basic Needs Approach

The basic needs approach was introduced by the International Labour

Organization in 1976, mainly in reaction to prevalent modernisation- and

structuralism-inspired development approaches, which were not achieving

satisfactory results in terms of poverty alleviation and combating inequality in

developing countries. It tried to define an absolute minimum of resources

necessary for long-term physical well-being. The poverty line which follows

from this is the amount of income needed to satisfy those basic needs. The

approach has been applied in the sphere of development assistance, to determine

what a society needs for subsistence, and for poor population groups to rise

above the poverty line. Basic needs theory does not focus on investing in

economically productive activities. Basic needs can be used as an absolute

measure of poverty.

Proponents of basic needs have argued that elimination of absolute poverty is a

good way to make people active in society so that they can provide labor more

easily and act as consumers and savers (UNESCO, 2006). There have been also

many critics of the basic needs approach. It would lack theoretical rigour,

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practical precision, be in conflict with growth promotion policies, and run the

risk of leaving developing countries in permanent backwardness.

Structural Change Theory

Structuralism is a development theory which focuses on structural aspects

which impede the economic growth of developing countries. The unit of

analysis is the transformation of a country’s economy from, mainly, subsistence

agriculture to a modern, urbanized manufacturing and service economy. Policy

prescriptions resulting from structuralist thinking include major government

intervention in the economy to fuel the industrial sector, known as Import

Substitution Industrialization (ISI) (Eugeniomiravete, 2001). This structural

transformation of the developing country is pursued in order to create an

economy which in the end enjoys self-sustaining growth. This can only be

reached by ending the reliance of the underdeveloped country on exports of

primary goods (agricultural and mining products), and pursuing inward-oriented

development by shielding the domestic economy from that of the developed

economies. Trade with advanced economies is minimized through the erection

of all kinds of trade barriers and an overvaluation of the domestic exchange

rate; in this way the production of domestic substitutes of formerly imported

industrial products is encouraged. The logic of the strategy rests on the Infant

industry argument, which states that young industries initially do not have the

economies of scale and experience to be able to compete with foreign

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competitors and thus need to be protected until they are able to compete in the

free market (Jazzapazza, 2011). The ISI strategy is supported by the Prebisch-

Singer thesis, which states that over time, the terms of trade for commodities

deteriorate compared to manufactured goods. This is because of the observation

that the income elasticity of demand is greater for manufactured goods than that

for primary products.

Structuralists argue that the only way Third World countries can develop is

through action by the State. Third world countries have to push industrialization

and have to reduce their dependency on trade with the First World, and trade

among themselves.

Dependency Theory

Dependency theory is essentially a follow up to structuralist thinking, and

shares many of its core ideas. Whereas structuralists did not consider that

development would be possible at all unless a strategy of delinking and rigorous

ISI was pursued, dependency thinking could allow development with external

links with the developed parts of the globe. However, this kind of development

is considered to be "dependent development", i.e., it does not have an internal

domestic dynamic in the developing country and thus remains highly vulnerable

to the economic vagaries of the world market. Dependency thinking starts from

the notion that resources flow from the ‘periphery’ of poor and underdeveloped

states to a ‘core’ of wealthy countries, which leads to accumulation of wealth in

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the rich states at the expense of the poor states. Contrary to modernization

theory, dependency theory states that not all societies progress through similar

stages of development. Primitive states have unique features, structures and

institutions of their own and are the weaker with regard to the world market

economy, while the developed nations have never been in this follower position

in the past. Dependency theorists argue that underdeveloped countries remain

economically vulnerable unless they reduce their connectedness to the world

market (Mtholyoke.edu., 1966; Fordham.edu., 2013). Dependency theory states

that poor nations provide natural resources and cheap labour for developed

nations, without which the developed nations could not have the standard of

living which they enjoy. Also, developed nations will try to maintain this

situation and try to counter attempts by developing nations to reduce the

influence of developed nations. This means that poverty of developing nations

is not the result of the disintegration of these countries in the world system, but

because of the way in which they are integrated into this system.

In addition to its structuralist roots, dependency theory has much overlap with

Neo-Marxism and World Systems Theory, which is also reflected in the work of

Immanuel Wallerstein, a famous dependency theorist. Wallerstein rejects the

notion of a Third World, claiming that there is only one world which is

connected by economic relations (World Systems Theory). He argues that this

system inherently leads to a division of the world in core, semi-periphery and

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periphery. One of the results of expansion of the world-system is the

commodification of things, like natural resources, labor and human

relationships (Elwell, 2006).

Post-development Theory

Post-development theory is a school of thought which questions the idea of

national economic development altogether. According to post-development

scholars, the goal of improving living standards leans on arbitrary claims as to

the desirability and possibility of that goal. Post-development theory arose in

the 1980s and 1990s.

According to post-development theorists, the idea of development is just a

'mental structure' (Sachs,1992) which has resulted in an hierarchy of developed

and underdeveloped nations, of which the underdeveloped nations desire to be

like developed nations (Meadows et al.,1972). Development thinking has been

dominated by the West and is very ethnocentric (Sachs, 1992). The Western

lifestyle may neither be a realistic nor a desirable goal for the world's

population, post-development theorists argue. Development is being seen as a

loss of a country's own culture, people's perception of themselves and modes of

life. According to Majid Rahnema (1991), another leading post-development

scholar, things like notions of poverty are very culturally embedded and can

differ a lot among cultures. The institutes which voice the concern over

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underdevelopment are very Western-oriented, and post-development calls for a

broader cultural involvement in development thinking.

Post-development proposes a vision of society which removes itself from the

ideas which currently dominate it. According to Arturo Escobar (1995), post-

development is interested instead in local culture and knowledge, a critical view

against established sciences and the promotion of local grassroots movements.

Also, post-development argues for structural change in order to reach solidarity,

reciprocity, and a larger involvement of traditional knowledge.

Neo-Liberalist Theory

Neoliberalism is a term whose usage and definition have changed over time

(Taylor and Gans-Morse, 2009). Since the 1980s, the term has been used

primarily by scholars and critics in reference to the resurgence of 19th century

ideas associated with laissez-faire economic liberalism beginning in the 1970s

and 1980s, whose advocates support extensive economic liberalization policies

such as privatization, fiscal austerity, deregulation, free trade, and reductions in

government spending in order to enhance the role of the private sector in the

economy. Neoliberalism is famously associated with the economic policies

introduced by Margaret Thatcher in the United Kingdom and Ronald Reagan in

the United States (Campbell, et al., 2005). The transition of consensus towards

neoliberal policies and the acceptance of neoliberal economic theories in the

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1970s are seen by some academics as the root of financialization, with the

financial crisis of 2007–08 one of the ultimate results. Neoliberalism was

originally an economic philosophy that emerged among European liberal

scholars in the 1930s in an attempt to trace a so-called ‘Third’ or ‘Middle Way’

between the conflicting philosophies of classical liberalism and collectivist

central planning. The impetus for this development arose from a desire to avoid

repeating the economic failures of the early 1930s, which were mostly blamed

on the economic policy of classical liberalism. In the decades that followed, the

use of the term neoliberal tended to refer to theories at variance with the more

laissez-faire doctrine of classical liberalism, and promoted instead a market

economy under the guidance and rules of a strong state, a model which came to

be known as the social market economy.

Sustainable development

Sustainable development is economic development in such a way that it meets

the needs of the present without compromising the ability of future generations

to meet their own needs, (Brundtland Commission, 1983). There exist more

definitions of sustainable development, but they have in common that they all

have to do with the carrying capacity of the earth and its natural systems and the

challenges faced by humanity. Sustainable development can be broken up into

environmental sustainability, economic sustainability and sociopolitical

sustainability. The book 'Limits to Growth', commissioned by the Club of

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Rome, gave huge momentum to the thinking about sustainability (Meadows et

al., 1972). Global warming issues are also problems which are emphasized by

the sustainable development movement. This led to the 1997 Kyoto Accord,

with the plan to cap greenhouse-gas emissions.

Opponents of the implications of sustainable development often point to the

environmental Kuznets curve. The idea behind this curve is that, as an economy

grows, it shifts towards more capital and knowledge-intensive production. This

means that as an economy grows, its pollution output increases, but only until it

reaches a particular threshold where production becomes less resource-intensive

and more sustainable. This means that a pro-growth, not an anti-growth policy

is needed to solve the environmental problem. But the evidence for the

environmental Kuznets curve is quite weak. Also, empirically spoken, people

tend to consume more products when their income increases. Maybe those

products have been produced in a more environmentally friendly way, but on

the whole the higher consumption negates this effect. There are people like

Julian Simon however who argue that future technological developments will

resolve future problems.

Human Development Theory

Human development theory is a theory which uses ideas from different origins,

such as ecology, sustainable development, feminism and welfare economics. It

wants to avoid normative politics and is focused on how social capital and

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instructional capital can be deployed to optimize the overall value of human

capital in an economy.

Amartya Sen and Mahbub ul Haq are the most well-known human development

theorists. The work of Sen is focused on capabilities: what people can do, and

be. It is these capabilities, rather than the income or goods that they receive (as

in the Basic Needs approach), that determine their wellbeing. This core idea

also underlies the construction of the Human Development Index, a human-

focused measure of development pioneered by the UNDP in its Human

Development Reports. The economic side of Sen's work can best be categorized

under welfare economics, which evaluates the effects of economic policies on

the well-being of peoples.

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