surplus from publicness in consumption and its equitable distribution abstract the application of distributive equity has been confined to the allocation of private goods this paper extends this application to economies with public goods after the surplus accruing from publicness in consumption of public goods is defined and quantified we show 1 there exists an efficient allocation such that the surplus from publicness as well as all of the resources available are equitably distributed 2 the surplus from publicness fails to be equitably distributed in lindahl equilibria and in the core even if the economy starts from an equal distribution of endowments 3 a certain income redistribution policy should be undertaken to equitably distribute the surplus from publicness

a dynamic approach to the measurement of waste in an open economy abstract the paper develops a methodology for evaluating the cost of distortions within the production sector of a small open growing economy quadratic approximations to the loss of output are developed the main new result is that the dynamic loss due to distortions generally exceeds the discounted sum of static type losses due to distortions at least to the second order another new result derives a quadratic approximation to the output loss that can be calculated using information on the size of the distortions and on producer substitution matrices evaluated at an observed distorted equilibrium rather than at a hypothetical undistorted equilibrium

welfare analysis and intertemporal substitution abstract this paper explores the structure of welfare comparisons when direct utility is weakly separable over time the lifetime welfare effect of a reform is then the sum of atemporal hicksian variations and intertemporal variations reflecting intertemporal substitution these latter are shown to be of only second order importance in lifetime welfare comparisons approximations to the intertemporal variations when preferences are intertemporally additive are derived pointing to the welfare significance in this context of not only the intertemporal elasticity of substitution but also within period income effects numerical examples illustrate the analysis and suggest possible orders of magnitude

intervention and sterilisation under floating exchange rates the uk 1973 1983 in this paper a small portfolio balance model in the spirit of obstfeld 1983 is estimated for the sterling pound us dollar exchange rate over the period 1973 quarter 2 to 1983 quarter 4 it is demonstrated inter alia that pure or sterilised foreign exchange market intervention can be effective even when agents form expectations rationally

aggregate consumer behaviour and the measurement of inequality this paper presents an approach to inequality measurement based on an econometric model of aggregate consumer behaviour the novel feature of this model is that systems of individual demand functions can be recovered uniquely from the system of aggregate demand functions we present methods for evaluating social welfare based on an explicit social welfare function this social welfare function incorporates measures of individual welfare based on indirect utility functions for all consumer units we develop indexes of inequality based on actual and potential levels of social welfare

welfare analysis of tax reforms using household data abstract this paper discusses a methodology for calculating the distribution of gains and losses from a policy change using data for a large sample of households estimates are based on the equivalent income function which is money metric utility defined over observable variables this enables calculations to be standardised and a computer program to compute the statistics presented in the paper is available for a general demand system equivalent income is related to measures of deadweight loss and standard errors are computed for each of the welfare measures an application to u k data for 5 895 households is given which simulates a reform that involves eliminating housing subsidies

the role of technological availability for the distributive impacts of climate change mitigation policy the impacts of the availability of low carbon technologies on the regional distribution of mitigation costs are analyzed in a global multi regional integrated assessment model three effects on regional consumption losses are distinguished domestic measures trade of fossil energy carriers and trade of emission permits key results are i gdp losses and a redirection of investments in the energy system towards capital intensive technologies are major contributions to regional consumption losses ii a devaluation of tradable fossil energy endowments contributes largely to the mitigation costs of fossil fuel exporters iii in case of reduced availability of low carbon technologies the permit market volume and associated monetary redistributions increase the results suggest that the availability of a broad portfolio of low carbon technologies could facilitate negotiations on the permit allocation scheme in a global cap and trade system

measuring the inefficiences of tax systems abstract the properties of the procedure for measuring inefficiency developed by debreu 1951 1954 are summarised and the advantages of such an input based approach in analysing taxation discussed exact expressions for the debreu measure of deadweight loss are derived and the measure proposed by kay 1980 shown to be a special case the approach is pursued to construct and interpret a measure of the overall welfare loss from taxation which decomposes conveniently into efficiency and distributional components in one special case the corresponding index of total effectiveness is the product of debreu s coefficient of resource utilisation and an atkinson equality index

three sides of harberger triangles prevailing economic wisdom is highly critical of injudicious tax policies or government regulations uncorrected externalities unchecked monopolistic practices and various other market failures when economists are challenged to quantify the economic costs of associated price distortions it is standard practice and has been since the 1960s to use a small number of assumptions and selected elasticities to estimate areas of the relevant harberger triangles this simple and straightforward exercise has numerous applications and the virtue of producing answers rather than conjectures harberger triangles come in many shapes and sizes figure 1 offers an illustration of such a triangle for the simple case of an excise tax point a of figure 1 at which the demand and supply schedules intersect denotes market equilibrium in the absence of the tax with quantity q1 transacted at price p1 introduction of an excise tax at rate t payable by firms selling the commodity shifts the supply schedule upward by t at the new market equilibrium firms sell q2 units of the commodity at a market price of p2 receiving after tax p3 a p2 0 t market equilibrium at point a in figure 1 has the feature that marginal consumption benefits equal marginal production costs the excise tax drives a wedge between marginal benefits and marginal costs at consumption level q2 consumers are willing to pay any amount up to p2 for additional units of the good and suppliers would readily provide additional units of the good for any price of p3 or greater but these additional transactions do not take place due to the effect of the tax wedge the loss associated

the social cost of living index abstract household cost of living indexes reflect household preferences analogous indexes for groups of households require a corresponding concept of group preferences in this paper i investigate the social cost of living index a group index based on the bergson samuelson social welfare function i first define the index and examine its properties under the assumption that the investigator constructing it expresses his distributional judgments in an explicit bergson samuelson social welfare function i then examine the maximizing society and the independent society two cases in which the index can be constructed from the information contained in the market demand functions in these two cases a laspeyres index i e the fixed weight index based on the reference consumption pattern is an upper bound on the exact social cost of living index in general however the assumptions required to place bounds on the social cost of living index are much more likely to be satisfied than those required to place analogous bounds on a household s cost of living index

trade production sharing and the international transmission of business cycles countries that are more engaged in production sharing exhibit higher bilateral manufacturing output correlations we use data on trade flows between us multinationals and their affiliates as well as trade between the united states and mexican maquiladoras to measure production sharing trade and its link with the business cycle we then develop a quantitative model of international business cycles that generates a positive link between the extent of vertically integrated production sharing trade and internationally synchronized business cycles a key assumption in the model is a relatively low elasticity of substitution between home and foreign inputs in the production of the vertically integrated good

the measurement of deadweight loss in an open economy there are many approaches to the measurement of the resources wasted in an economy arising from an inappropriate system of taxation and government regulation the existing literature on this topic is too voluminous for us to summarize in this introduction 1 in the remainder of this introduction therefore we simply outline what we hope to add to the literature in this paper at the outset it should be mentioned that we are going to consider only the deadweight loss generated by inappropriate systems of taxation the losses generated by monopolistic behaviour on the part of producers could be modelled in a similar fashion but we leave this generalization to the reader 2 in section i below we illustrate our two alternative measures of deadweight loss by means of some simple diagrams from the diagrammatic viewpoint neither loss measure has a clear cut advantage over the other however when we move to our algebraic analysis of the loss measures and to quadratic approximations then it turns out that our allais debreu loss measure allais 1943 pp 610 616 debreu 1951 1954 has a clear cut advantage over the hicks boiteux measure hicks 1941 1942 boiteux 1951 at least when the number of households in the economy exceeds one it should be mentioned that we are restricting our attention to loss measures that are well defined when a there is an arbitrary number h of households in the economy b there is an arbitrary number n of domestic goods and an arbitrary number m of internationally traded goods in the economy 3 and c there is an arbitrary number k n of constant or diminishing returns to scale sectors in the production sector of the economy the last restriction turns out to be important because the case where n the number of domestic goods equals k the number of sectors leads to measures of deadweight loss that have substanitally lighter informational requirements in section ii we lay out our model of the economy using duality theory in order to reduce the number of variables and equations in section iii we develop a measure of loss arising from tariff and tax distortions which is due essentially to boiteux 1951 conceptually the boiteux loss measure is simply a sum of hicksian 1941 1942 p 128 equivalent variations applied to each consumer s expenditure function so we call our loss measure a hicks boiteux loss measure however boiteux 1951 p 128 provided a quadratic approximation to his loss measure which decomposed into additive consumer and producer terms whereas hicks and others did not accomplish this additional step we obtain the same kind of decomposition as boiteux but generalized to an open economy 5 it should be noted that the loss measure developed in this section collapses down to the standard

the measurement of waste within the production sector of an open economy a methodology for measuring the loss of output that can be attributed to distortions within the production sector of an open economy is proposed examples of distortions are tariffs on imported intermediate inputs taxes or subsidies on exports specific taxes on an output that is used as an input by another industry nonneutral corporate income taxes interindustry monopolistic markup pricing and union induced wage differentials the methodology generalizes the earlier work of allais and debreu

exact consumer s surplus and deadweight loss consumer s surplus is a widely used tool in applied welfare economics both economic theorists and cost benefit analysis often use consumer s surplus despite its somewhat dubious reputation the basic idea is to evaluate the value to a consumer or his willingness to pay for a change in price of a good from say pricep to pricep because price changes affect consumer welfare an evaluation of this effect is often a key input to public policy decisions yet consumer s surplus is probably the most controversial of widely used economic concepts both paul samuelson and ian little conclude that the economics profession would be better off without it it is my feeling of the situation that substantial agreement exists on the correct quantities to be measured the amount the consumer would pay or would need to be paid to be just as well off after the price change as he was before the price change the quantities correspond to john hicks compensating variation measures an alternative measure which takes ex post price change utility as the basis of comparison is hicks equivalent variation the controversy arises in the measurement of these quantities the usual measurement procedure is to use the area to the left of the marshallian market demand curve between two price levels jules dupuit originated this measure of welfare change and alfred marshall and hicks derived appropriate conditions for its use the primary condition for the area to the left of the demand curve to correspond to the compensating variation is to have constant marginal utility of income marshall gave this condition and if it holds the same quantity will be derived as the area to the left of the compensated hicksian demand curve this area to the left of the compensated demand curve is exactly what the compensating variation and equivalent variation measure thus the constant marginal utility of income is a sufficient condition for marshallian consumer s surplus to be equal to hicks consumer s surplus in this case arnold harberger s plea to use the welfare triangle as one half times the product of the price change times the quantity change to measure deadweight loss corresponds to the correct theoretical amount of welfare change in a recent paper robert willig derives bounds for the percentage difference between the correct measure of either the compensating or equivalent variation and the marshallian measure derived form the market demand curve his bounds which depend on the income elasticity of demand for the single good in the region of price change being considered as well as the proportion of the consumer s income spent on the good demonstrate that the marshallian consumer s surplus is often a good approximation to hicks consumer s surplus the fact that the proportion of the consumer s income spent matters as well as the income elasticity was first pointed out by harold hotelling willig contends that the approximation error will be less than the errors involved in estimating the demand curve thus he hopes to remove the need for apology that applied economists often need to give to theorists who remark on the inappropriateness of using marshallian consumer s surplus to measure welfare change however in this paper i show that for the case primarily considered by willig of a single price change which is also the situation in which consumer s surplus is often used in applied work no approximation is necessary professor of economics massachusetts institute of technology and research associate national bureau of economic research i would like to thank peter diamond erwin diewert daniel mcfadden robert merton robert solow hal varian joel yellin and the referees for help and comments research support from the national science foundation is acknowledged the reason that we still have two rather than one of samuelson s six measures of consumer s surplus arises from an index number problem of the correct basis for the welfare comparison i will give both measures but plan to concentrate on the compensating variation

the deadweight costs of taxation in new zealand when revenue is raised through taxation a number of costs are imposed on the community the most obvious of these is the cost accounted for by the amount of the revenue a cost which is borne by consumers and producers in the particular market in which the tax is imposed looking at the community as a whole this cost is offset to some extent by gains to those who benefit from the expenditure financed by the revenue however important additional costs may arise from changes in behaviour induced by taxation these incentive costs will be incurred if people tum to less preferred substitutes as a result of taxation or employ less satisfactory methods of production losses created in this way are known as deadweight costs or are sometimes referred to as the excess burden of taxation the size of deadweight losses is influenced by a range of factors but they are likely to be largest when the actions of producers and consumers are highly responsive to after tax prices when existing marginal tax rates are high and when savings are highly responsive to after tax returns since the responsiveness of economic activity to changes in after tax prices is the critical determinant of the size of deadweight costs a major part of this study has been concerned with obtaining estimates of the key consumer and producer price elasticities these elasticity estimates are then a key input into a small scale general equilibrium model from which deadweight cost estimates for new zealand are derived making use of duality theory the small scale general equilibrium model equates supplies of goods from producers with the demand for them from consumers and the government consumer and government budget constraints are included and the balance of payments on current account and the budget deficit are specified exogenously producers supplies are specified as producer price derivatives of the profit

international trade transmission channel of a local crisis a simple model espanolproponemos un modelo de interdependencia general lineal para la economia mundial y utilizamos datos de la division estadistica de las naciones unidas para estimar sus parametros esto nos permite evaluar la propagacion de un shock exogeno a los gastos autonomos de un pais mediante el canal del comercio internacional pudiendo construir un ranking de vulnerabilidad para los paises de la muestra frente a un shock a cualquiera de ellos la respuesta del sistema a un shock negativo sobre los gastos autonomos de estados unidos es llevado a cabo como ejemplo si bien sujeto a multiples debilidades estos resultados de estatica comparativa pueden ser utiles para analisis de politica englishwe propose a linear general interdependence model of the world economy and use united nations statistics division data to estimate its parameters this allows us to assess the propagation through the channel of international trade of an exogenous shock to one country s autonomous expenditures thereby constructing a vulnerability ranking for the countries in the sample to an exogenous shock to any of them the response of the system to a negative shock to the united states autonomous outlays is carried out as an example though subject to multiple caveats these comparative statics results might be useful for policy analysis

news and the 1920 s experience with floating exchange rates in this paper the news approach to modelling the exchange rate is implemented for the inter war experience with floating exchange rates the results are shown to be broadly supportive of similar tests conducted for the 1970 s experience with floating

the value of technological advance in decarbonizing the u s economy abstract this paper examines the role of technology in managing the costs of a carbon constraint on the u s economy two portfolios of technology are examined one reflects modest investments in climate friendly technologies the other more aggressive development the analysis indicates that the development of a broad range of low to zero carbon emitting technologies can substantially reduce but not eliminate the economic cost of decarbonization by enabling large scale emission reductions on the supply side costly reductions in demand are avoided in particular the emergence of electricity as a low carbon fuel provides a powerful lever for achieving reductions in other sectors of the economy at lower cost while the analysis suggests that there is no free lunch the bill which may indeed be well worth paying can be greatly reduced through an accelerated r d program and successful diffusion of new technology throughout the economy

international equity and differentiation in global warming policy ne of the major obstacles to reaching a comprehensive agreement on global warming is the setting of greenhouse gas emission reduction targets for individual countries long standing tensions between industrialized and developing countries have raised the issue of equity in burden sharing moreover individual industrialized nations have pleaded special circumstances and have sought differentiation in their obligations this paper analyzes alternative rules for distributing tradable carbon dioxide emissions permits a non linear programming model which distinguishes between allocation based and outcome based rules is used to analyze the relative welfare outcomes the model is applied to the world body of nations and yields several important policy implications

the singapore dollar tests of the efficient markets hypothesis and the role of news in this paper the efficient markets hypothesis emh is tested for the singapore dollar over the period from january 1978 to march 1983 the tests are conducted using the relationship between the spot foreign exchange rate and the corresponding lagged forward foreign exchange rate the tests consist of an unbiasedness test an error orthogonality test and a test of the impact of news in the singapore foreign exchange market the results indicate a certain degree of independence in the implementation of monetary policy for the singapore monetary authority

thin capital markets a study of the kuwaiti stock market a reply 1983 thin capital markets a study of the kuwaiti stock market a reply applied economics vol 15 no 1 pp 123 124

econometric issues in macroeconomic models with generated regressors the paper critically reviews the literature on the econometric issues raised by the use of generated regressors gr in empirical models the economic rationale for the use of gr is considered with examples being drawn from several macroeconomic examples including new classical macroeconomic ncm models which postulate monetary neutrality various estimation methods are discussed for models which include surprise or unexpected terms and the strengths and weaknesses of each approach are investigated drawing upon the work of mcaleer and mckenzie 1991 situations where the typically inefficient two step estimation 2se method will be efficient are highlighted problems of model misspecification and measurement errors are also investigated an empirical section highlights some of the dangers of using uncorrected 2se estimation results through a careful consideration of many recent attempts to test the ncm monetary neutrality hypothesis copyright 1993 by blackwell publishers ltd

money income and prices in singapore reconsidered 1990 money income and prices in singapore reconsidered applied economics vol 22 no 5 pp 653 668

long term climate policy implications of phasing out fossil fuel subsidies abstract it is often argued that fossil fuel subsidies hamper the transition towards a sustainable energy supply as they incentivize wasteful consumption we assess implications of a subsidy phase out for the mitigation of climate change and the low carbon transformation of the energy system using the global energy economy model remind we compare our results with those obtained by the international energy agency based on the world energy model and by the organization for economic co operation and development oecd model env linkages providing the long term perspective of an intertemporal optimization model the results are analyzed in the two dimensions of subsidy phase out and climate policy scenarios we confirm short term benefits of phasing out fossil fuel subsidies as found in prior studies however these benefits are only sustained to a small extent in the long term if dedicated climate policies are weak or nonexistent most remarkably we find that a removal of fossil fuel subsidies if not complemented by other policies can slow down a global transition towards a renewable based energy system the reason is that world market prices for fossil fuels may drop due to a removal of subsidies thus low carbon alternatives would encounter comparative disadvantages

flexible exchange rates prices and the role of news lessons from the 1970s recent experience with flexible exchange rate systems has led to renewed interest in the operation of foreign exchange markets as reflected in many recent studies of the principal determinants of exchange rates the 1970s witnessed the dramatic alteration of the international monetary system from a regime of pegged exchange rates which prevailed for about a quarter of a century since the bretton woods conference into a regime of flexible though managed rates as a consequence of the emergence of the new legal and economic system traders national governments and international organisations were confronted with new economic problems choices and instruments during the 1970s ex change rates fluctuated widely and inflation rates accelerated the international monetary system had to accommodate extraordinarily large oil related shocks which affected trade flows in goods and assets huge oil payments had to be recycled uncertainties concerning future developments in international politics reached new heights and the prospects for the world economy got gloomier these developments placed unprecedented pressures on the markets for foreign exchange as well as on other asset markets they were associated with a large slide in the value of the us dollar and resulted in speeding up the creation of new institutions like the european monetary system which provided the formal framework for the management of exchange rates among members

an econometric study on estimation of trade shares using the almost ideal demand system in the world link the objectives of this paper are to analyse the import shares by country using the world trade matrix data for 25 countries regions of the world various methods for the analysis of import or export shares are used in the literature but none of the studies has made use of the approach of an almost ideal demand system aids deaton and muellbauer 1980 the results based on aids for import shares are plausible and when maximizing behaviour is not assumed estimation of import share equations by ordinary least squares is possible in the aids approach import shares turn out to be a function of real value of imports and export prices of major competitors homogeneity and symmetry restrictions can be tested and estimation with constraints can conducted using fiml full information maximum likelihood or equivalent methods the paper presents results for three important countries regions namely the usa japan and the eec as importing country regions and for major suppliers to each country region the impo

the impact of learning by doing on the timing and costs of co2 abatement abstract a particular ceiling on atmospheric co 2 concentrations can be maintained through a variety of emission pathways over the past decade there has been considerable debate over the characteristics of a least cost pathway some have suggested that a gradual departure from the emissions baseline will be the most cost effective because it reduces the pressure for premature retirement of the existing capital stock and it provides valuable time to develop low cost low carbon emitting substitutes others counter that a major flaw in analyses that support this line of reasoning is that they ignore learning by doing lbd in this paper we examine the impact of lbd on the timing and costs of emissions abatement with regard to timing we find that including learning by doing does not significantly alter the conclusions of previous studies that treated technology cost as exogenous the analysis supports the earlier conclusion that for a wide range of stabilization ceilings a gradual transition away from the no policy emissions baseline is preferable to one that requires substantial near term reductions we find that the major impact of including learning by doing is on the costs of emission abatement depending upon the sensitivity of costs to cumulative experience lbd can substantially reduce the overall costs of emissions abatement

kaldor on welfare nicholas kaldor s contribution to welfare economics is assessed his compensation test is best regarded as a test of economic efficiency to guard against contradiction the possibility of compensation must be calculated in an imaginary economy constrained by a production function contracted in output space rough rules of thumb are available to aid the calculation copyright 1989 by oxford university press

floating exchange rates expectations and new information abstract this paper analyzes the relationship between forward exchange rates future spot rates and new information a stochastic model of exchange rate determination is used to formally show how unanticipated changes in the exchange rate determinants or news affect the spot rate the empirical analysis indicates that new information plays an important role in explaining the market forecasting error or difference between the spot rate and the forward rate determined in the previous period

the measurement of deadweight loss revisited modities such as various consumer goods and labor m fixed factors such as land natural resources and various types of fixed capital and a government which taxes commodities and fixed factors in order to finance various govern ment expenditures it is well known2 that if the government can raise its required revenue by taxing the fixed factors alone then the resulting allocation of resources is pareto optimal no single household s utility or real income can be increased without decreasing the utility of some other household suppose we are at an initial equilibrium where government revenue is being raised by taxing the fixed factors alone then the resulting equilibrium can be rationalized by maximizing a certain weighted sum of utility functions subject to various feasibility constraints now think of the government replacing the taxes on fixed factors with distortionary commodity taxes in section 3 we calculate the second order directional derivative of the above weighted sum of utility functions with respect to any feasible direction of tax change evaluated at the initial equilibrium which is pareto optimal of course the first order directional derivatives of the weighted sum of utility functions with respect to feasible directions of tax change are zero evaluated at this initial equilibrium we obtain a measure of economic loss due to tax distortions which is virtually identical to that of boiteux 3 p 113 and which bears a resemblance to the dead loss of hotelling 22 p 254 the consumer s surplus measures of hicks 19 20 pp 330 3 and the deadweight loss measure of harberger 16 p 61 17 p 788 in section 4 we calculate a measure of welfare loss based on debreu s 4 5 coefficient of resource utilization which is a modification of a measure of loss due to allais 1 2 and we show that under certain conditions the hotelling

piecemeal tax reforms and the compensated radial elasticities of tax bases abstract it is shown that tax inefficiency is measured by the compensated radial elasticity cre of a tax base defined as the percentage reduction in that base due to a compensated 1 percent radial increase in all tax rates the rule that efficiency can be raised by switching taxes from goods with higher elasticities to those with lower elasticities becomes rigorous if elasticities is replaced by cres use of the cre can simplify and integrate the main results in the optimal tax literature

measuring tax efficiency a tax optimality index this paper introduces an index of tax optimality that measures the distance of some current tax structure from the optimal tax structure in the presence of public goods this index is defined on the 0 1 interval and measures the proportion of the optimal tax rates that will achieve the same welfare outcome as some arbitrarily given initial tax structure we call this number the tax optimality index we also show how the basic methodology can be altered to derive a revenue equivalent uniform tax which measures the tax burden implied by the public sector a numerical example is used to illustrate the method developed and extensions of the analysis to handle models with multiple households and nonlinear taxation structures are undertaken

an alternative approach to aggregate surplus analysis abstract this paper suggests a dual to the many person applied welfare economics problem with constraints on lymp sum redistribution the dual has the property of minimizing an aggregator function over individual income transfers the properties of the aggregator are dependent upon the resource costs of redistribution and not upon the distributional preferences embodied in the social welfare function an interpretation of the dual problem in terms of consumer surplus is offered

the estimation of keynesian income multipliers at the sub national level 1988 the estimation of keynesian income multipliers at the sub national level applied economics vol 20 no 11 pp 1435 1444

effects of carbon dioxide capture and storage in germany on european electricity exchange and welfare in the course of european efforts to mitigate global warming the application of carbon dioxide capture and storage ccs technologies is discussed as a potential option some political opposition was raised a inter alia a by uncertainties about the effective cost of such technologies because of the cost structure of ccs power plants with high a flata investment cost and a in case of high carbon allowance prices a comparable low variable cost the application of ccs will induce a merit order effect causing a decline in electricity prices on the spot market on the one hand the reduction of electricity supply cost raises suppliersa rents while the decline of electricity prices augments consumersa surpluses these positive welfare effects tend to mitigate political opposition against ccs on the other hand the merit order effect reduces electricity suppliersa revenues as the electricity prices decline this mitigates their scope for additional investments in ccs capacity in this study we focus on the influence of ccs in germany on electricity supplier and consumer surpluses and associated impacts on the scope for investments in additional ccs capacity by means of the applied model of electricity markets influences on european electricity exchange and welfare levels are investigated