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Welfare dynamics based on a new concept of inefficient equilibrium

Zaman, Md Monowaruz (2008): Welfare dynamics based on a new concept of inefficient equilibrium.

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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.

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