LOJB10286U  Welfare Economics and Policy

Volume 2013/2014
BSc Programme in Agricultural Economics
BSc Programme in Natural Resoruces
BSc Programme in Science and IT
The content of this course falls in a theoretical and an applied part. The theoretical part consists of basic welfare economic theory using utility maximization and Pareto-efficiency as a reference point for the perception that the free market maximizes welfare. Welfare is, however, only maximized in the absence of market failures and focus is at the market failures public goods, externalities and asymmetric information. Public and private efficiency-improving intervention in the market including the design of policies is discussed for each of the market failures. Common property resources are also reviewed. Second, welfare depends on the policy setting in which decisions are taken. This is addressed under political economy, focusing at the process of policy-making and the relationship between government and different interest group on a political market. Third, non-efficiency related arguments for intervention, are introduced, motivated by policy-makers concern with consequences of the income distribution generated by the market. Focus is at motivations and instruments for income redistribution and social security. Finally, the funding of public spending is considered in a public finance perspective focusing at tax theory, efficient and equitable taxation and behavior. Throughout the theoretical part, the design and consequences of various economic policy instruments will be presented and analyzed in relation to the fulfilling of government objectives and the overall efficiency of resource allocation. The applied part consists of case studies of agriculture, fisheries and environment policies, analyzing them using the instruments introduced in the theoretical part. In agriculture, government intervention terms like multifunctionality and the farm income problem are explained. In relation to policy instruments numerous agricultural policy measures are analyzed in relation to fulfilling objectives and resource allocation. On the revenue side taxes and tariffs are presented and on the expenditure side instruments like production reduction, price support and direct payments are presented. The agricultural policy-making process in the European Union is used to explain Public Choice. In fisheries, the tragedy of the commons where unregulated markets lead to overexploitation and overcapacity is reviewed. Finally, a case on water management is presented focusing at nitrogen pollution and management.
Learning Outcome
The learning outcome of this course is to use economic theory (Welfare Economics, Public Choice and Public Finance) to explain the foundation of economic policy, the design and the efficiency of different policy instruments, welfare consequences of economic policy, and the process of policy-making. Overall it is expected that the students will learn basic tools for future economic policy analysis. After completing this course the student is expected to be able to:

 • Identify welfare economic arguments for government intervention in markets
 • Understand the concept of the market failures public goods, externalities and asymmetric information
 • Show overview of distribution and efficiency effects of government taxing activities
 • Describe the political economy of the Common Agricultural Policy

 • Analyze welfare, efficiency and income distribution consequences of policies in agriculture, fisheries and the environment
 • Identify efficient policy instruments in these sectors using analytical tools from welfare economics
 • Choose and apply relevant welfare economic analytical methods on cases within agricultural, fisheries and environmental policies

 • Choose and apply relevant welfare economic analytical methods also on other policies than in agriculture, fisheries and the environment.

The curriculum consist of app. 600 pages in the form of book chapters, articles,reports etc. The curriulum will appear as a compendium.

A cource in Microeconomics is strongly recommended.
The teaching is based on lectures that introduce teh central and crucial elements of the curriculum. Furthermore, there will be exercises in the theoretical part of the course in which the students can develop their understanding of the subject further.
7,5 ECTS
Type of assessment
Oral examination under invigilation
The oral examination takes approximately 15 minutes with 20 minutes preparation time. The weight of the oral exam is 100%.
Written aids allowed
All written aids are allowed, mobile phones and computers are not not allowed.
Marking scale
7-point grading scale
Censorship form
No external censorship
Internal examination, made during the oral exam by the two main lectures and one internal examiner.
Criteria for exam assesment
The students are assessed according to the learning outcome
  • Category
  • Hours
  • Lectures
  • 54
  • Theory exercises
  • 18
  • Preparation
  • 134
  • Total
  • 206