Welfare Dynamics Based on a New Concept of Inefficient Equilibrium

Abstract

This article has developed a new model of welfare dynamics under imperfect information or imperfect competition by introducing a new concept of "inefficient equilibrium". If a country suffers from poverty, then the population of the country can be divided into two groups. For one group the fundamental welfare theorems are valid and for the other group the welfare is yet to achieve. The first group establishes an inefficient equilibrium with the second group. The institutions of an economy play very important role when these two groups interact with each other. This concept narrowly defines where government should work. This model is enhanced to describe a new 'Market Model of Welfare Dynamics' that our market is not uniform but distributed in layers of energy states. The probability of achieving Pareto efficiency decreases down along the market energy states. At the end, another new concept 'Market Loop' is defined to shed light on recent financial crisis and recession.

The Theoretical Aspect of Muhammad Yunus's Dream - 'Putting Poverty in Museums'

“…The concept of Zaman's inefficiency equilibrium (Zaman, 2008b) tells that poor people are living under a set of constraints imposed by non-poor people. Poverty will sustain when most of the efforts for poverty reduction whether by government or by non-government are biased.…”

“…Zaman (2008b) mentioned that the welfare economics rather worked up to a certain range and the poor people were positioned after that range. Yunus proposed non-loss and nondividend social businesses for them to provide all basic services they need.…”

“…Zaman (2008b) described that in an incomplete market, part of population of an economy established an inefficient equilibrium with the remaining population. The fourth section uses Zaman's inefficient equilibrium concept to explain poverty and proposes his Unbiased Pareto Improvement (UPI) concept to counteract the inefficiency barrier.…”

An Unbiased Pareto Improvement Strategy for Poverty Alleviation

“…Pareto efficiency for a subset of population was much higher than that for the whole population of a country (Zaman, 2009). This subset was named as Pareto Efficient Coalition (PEC) and the remaining part of population was named as Pareto Improvement Space (PIS).…”

“…In case we deal with poverty, the relationship between income and contribution may play a significant role in defining economic performance. The concept of inefficient equilibrium (Zaman, 2009) tells that a capitalist economy streamline flow of capital by underpaying people at the bottom of a biasing chain less than their contributions.…”