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DEAD-WEIGHT WELFARE LOSS

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Definition:
The deadweight welfare loss is a measure of the dollar value of consumers' surplus lost (but not transferred to producers) as a consequence of a price increase.

Context:
In anti-trust economics, there is some debate over the appropriate welfare measure to be applied. Some argue that lost consumer surplus (i.e. including both deadweight loss and producers' surplus) should be considered on the grounds that a transfer from consumers to firms does not improve social welfare. Others argue that this represents a value judgment and all decisions should be based only on the deadweight welfare loss (allocative efficiency), with judgments regarding transfers of income left to the political process. Still others argue that producers' surplus should be considered because much of it is dissipated in the quest for monopoly profits.

Source Publication:
Glossary of Industrial Organisation Economics and Competition Law, compiled by R. S. Khemani and D. M. Shapiro, commissioned by the Directorate for Financial, Fiscal and Enterprise Affairs, OECD, 1993.

Cross References:
Rent seeking

Hyperlink:
http://www.oecd.org/dataoecd/8/61/2376087.pdf

Statistical Theme: Financial statistics

Created on Thursday, January 03, 2002

Last updated on Monday, August 12, 2002