The quality that is taken by economists to indicate the well-being of a society or of the arrangements (or changes in them) that a society adopts. It is usually measured as an index. Higher levels of welfare are inherently better for that individual or society, as judged by the economist constructing or using the index. Economists, philosophers, sociologists and psychologists differ among themselves over what constitutes a higher level of welfare and whether useful empirical measurements of welfare can be made (construct validity).
Economists most frequently use per capita GDP (Gross Domestic Product) as the index of well-being. Some modify this welfare index with allowance for unpaid activity within households (which GDP excludes) or for environmental and related effects (which GDP treats erroneously from a welfare viewpoint: GDP rises if there is an oil spill and resources need to be used to clean it up). Extra-welfarists believe that, even with such modifications, GDP is inadequate since welfare involves much more than the mere satisfaction of wants through the consumption of goods and services.
Other words sometimes used by economists for welfare include utility and satisfaction. These alternatives are often used, however, without any implication that an individual or society is better off by having a higher level of either utility or satisfaction. They can merely denote that the chooser (the
368 Welfare Cost individual or society) has as a goal a higher level of this index, and not that the economist endorses their goal as a desirable one or that this is the only or the ultimate goal. Sometimes all that is meant by a utility number is a particular level of pain or pleasure for the individual or society in question. This, despite its wide currency, seems a pathetically inadequate measure of either individual or societal welfare.
Some economists try to avoid the concept of welfare entirely and, indeed, deny that the concept of welfare is meaningful. Such economists are broadly in the logical positivism school. Since health economics is largely inseparable from policy issues, in which questions deemed 'metaphysical' by analysts in that tradition are central, those who dodge the welfare implications of economic policies are severely limited in their ability to contribute to health economics. See Positive Economics, Rationality, Welfare Economics.
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