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A Theory of Lifetime Welfare: Cycles, Trend, Span, and Policies

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  • Vallejo, Hernán

    (Universidad de los Andes)

Abstract

This article presents a theory of lifetime welfare, considering the corresponding cycles, trend, and span. The model suggests that economic agents should focus more on improving, smoothing, and stabilizing the welfare trend of individuals, than on improving, smoothing, and stabilizing their consumption and income, since they are not the same. Given that private and public decisions can generate internalities and externalities, and thus, inefficiencies, these results can justify individual, social, and government interventions, for example in lifestyle, and the education, health, pension, and insurance markets. It is argued that this approach can be a complement to the worldwide efforts to improve the coverage and sustainability of the health and pension systems; help explain the so-called Easterlin paradox, and contribute to the wellness set point debate in psychology.

Suggested Citation

  • Vallejo, Hernán, 2024. "A Theory of Lifetime Welfare: Cycles, Trend, Span, and Policies," Documentos CEDE 21135, Universidad de los Andes, Facultad de Economía, CEDE.
    • Handle: RePEc:col:000089:021135
    as

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    File URL: https://repositorio.uniandes.edu.co/bitstreams/handle/1992/74222/dcede2024-16.pdf
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    References listed on IDEAS

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    1. Matthew Rabin & Ted O'Donoghue, 1999. "Doing It Now or Later," American Economic Review, American Economic Association, vol. 89(1), pages 103-124, March.
    2. Tversky, Amos & Kahneman, Daniel, 1992. "Advances in Prospect Theory: Cumulative Representation of Uncertainty," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 297-323, October.
    3. Milton Friedman, 1957. "A Theory of the Consumption Function," NBER Books, National Bureau of Economic Research, Inc, number frie57-1, January.
    4. Christopher D. Carroll, 2001. "A Theory of the Consumption Function, with and without Liquidity Constraints," Journal of Economic Perspectives, American Economic Association, vol. 15(3), pages 23-45, Summer.
    5. O'Donoghue, Ted & Rabin, Matthew, 1997. "Doing It Now or Later," Department of Economics, Working Paper Series qt7t44m5b0, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    6. Milton Friedman, 1957. "Introduction to "A Theory of the Consumption Function"," NBER Chapters, in: A Theory of the Consumption Function, pages 1-6, National Bureau of Economic Research, Inc.
    7. Easterlin, Richard A., 1974. "Does Economic Growth Improve the Human Lot? Some Empirical Evidence," MPRA Paper 111773, University Library of Munich, Germany.
    8. Bruce Headey, 2010. "The Set Point Theory of Well-Being Has Serious Flaws: On the Eve of a Scientific Revolution?," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 97(1), pages 7-21, May.
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    More about this item

    Keywords

    lifetime welfare; individual welfare trend curve; welfare smoothing; marginal rate of welfare trend change; social welfare trends function and frontier; and Easterlin paradox.;
    All these keywords.

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D60 - Microeconomics - - Welfare Economics - - - General
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • D70 - Microeconomics - - Analysis of Collective Decision-Making - - - General

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