Economics Dictionary of ArgumentsHome
| |||
|
| |||
| Welfare gains: Welfare gains in economics refer to improvements in overall economic well-being, often resulting from policy changes, trade, or technological progress. These gains reflect increased efficiency, higher income, or better resource allocation, benefiting individuals or society through enhanced consumption, production, or utility. See also Welfare, Welfare state, Efficiency._____________Annotation: The above characterizations of concepts are neither definitions nor exhausting presentations of problems related to them. Instead, they are intended to give a short introduction to the contributions below. – Lexicon of Arguments. | |||
| Author | Concept | Summary/Quotes | Sources |
|---|---|---|---|
|
Gernot Klepper on Welfare Gains - Dictionary of Arguments
Krugman III 122 Welfare gains/aviation/industrial policy/subsidies/Klepper: Production of large transport aircraft has often been considered a prime candidate for the realization, similar to theoretical predictions, of potential welfare gains through industrial and trade policy measures. A stylized simulation model of competition in the aircraft industry is developed, focusing on two distinct industrial policy measures: first, European governmental support of the entry of Airbus Industrie in the market for large transport aircraft and, second, the potential impact of production subsidies, taking into consideration unilateral action as well as possible retaliation. The welfare effects of government-supported market entry in the aircraft industry are somewhat difficult to interpret, because learning effects and economies of scope are so important that a monopoly would maximize world welfare-not considering distributional aspects. Krugman III 123 At the same time, the market is large enough to support two producers. It is also ambiguous which hypothetical situation the government-supported market entry of Airbus Industrie should be compared to. When Airbus’s entry is compared to a Boeing monopoly, overall welfare decreases. This is so because monopoly profits disappear, and, while consumers gain in all regions, they do so by less than the profit loss. The reason for this result is that scale and scope effects of producing large transport aircraft are strong enough to outweigh the output-reducing effects of a Boeing monopoly. From the viewpoint of European governments, Airbus’s market entry as an “antimonopoly” policy was not successful. Only consumers in the rest of the world will gain. The negative welfare change is due to Airbus’s inefficient scale of production relative to Boeing’s and due to the high subsidies. The negative welfare effects of Airbus’s entry are even more pronounced when compared to a situation with two established American producers. Airbus’s high-cost production yields higher welfare than a duopoly with two identical firms, because the scale effects of the large producer in the unequal situation dominate the competitive effects. Since consumers in all regions lose from Airbus’s entry and the American producer, Boeing, gains more than American consumers lose, the market entry of Airbus yields a positive welfare change only in North America. Generalization: The basic logic behind these results is not peculiar to the aircraft industry. If economies of scale are large enough, a market structure with a small number of firms can emerge which is, in welfare terms, inferior to a monopoly. Because two or more firms can profitably stay in the market, economies of scale remain unexhausted and - at the same time - are larger than the losses in consumer surplus from monopoly pricing. In asymmetric situations-for example, one large and one small firm-scale effects also come into play. In a symmetric equilibrium, economies of scale are exploited to the least extent. The more asymmetric the equilibrium, the more consumers can gain from the realized economies of scale of the large producers and still have the more competitive output policy. This logic is present in the analysis of production subsidies as well. >Industrial policy, >Subsidies, >Government policy, >Interventions, >Interventionism. Gernot Klepper. „Industrial Policy in the Transport Aircraft Industry.“ In: Paul Krugman and Alasdair Smith (Eds.) 1994. Empirical Studies of Strategic Trade Policy. Chicago: The University of Chicago Press._____________Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments The note [Concept/Author], [Author1]Vs[Author2] or [Author]Vs[term] resp. "problem:"/"solution:", "old:"/"new:" and "thesis:" is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition. |
Klepper, Gernot EconKrug I Paul Krugman Volkswirtschaftslehre Stuttgart 2017 EconKrug II Paul Krugman Robin Wells Microeconomics New York 2014 Krugman III Paul Krugman Alasdair Smith Empirical Studies of Strategic Trade Policy Chicago: The University of Chicago Press 1994 |
||
Authors A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
Concepts A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
