Scandinavian Working Papers in Economics

Umeå Economic Studies,
Umeå University, Department of Economics

No 680: Welfare Equivalent NNP and Habit Formation

Thomas Aronsson () and Karl-Gustaf Löfgren ()
Additional contact information
Thomas Aronsson: Department of Economics, Umeå University, Postal: S 901 87 Umeå, Sweden
Karl-Gustaf Löfgren: Department of Economics, Umeå University, Postal: S 901 87 Umeå, Sweden

Abstract: This note concerns the importance of habit formation for social accounting. With internal habit formation, earlier procedures for welfare measurement in the first best apply with minor modifications. This result strengthens the idea behind using the comprehensive net national product as a welfare indicator. If, on the other hand, part of the habit formation is exogenous to each consumer, the exact welfare measure will also reflect the associated external effect.

Keywords: Social accounting; habit formation; welfare

JEL-codes: D10; D60; D62; I31

7 pages, April 10, 2006

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