Measuring economic welfare in family household production : theory, contingent evaluation and tort compensation
Date
1983
Authors
Quah, Teong Ewe
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Abstract
The 'New Home Economics' literature is now an established part of economic theory. Market purchased goods aside, the time and efforts of household members are now recognized as important inputs used in this production process. The literature, however, does not deal extensively with the measurement of benefits received by the household from having household production. The thesis presents a method of valuing household production designed specifically for the many issues involving welfare and tort compensation--the settlement of legal disputes as to the amount of compensation required for losses in household production services due to wrongful injury or death. It is argued here that the appropriate measure of household welfare from household production consistent with standard welfare economics is the net value measurement from current levels of provision and that compensation for a tort induced loss of household production requires the original level of net benefits enjoyed by the household be restored. This is shown to be equivalent to the compensating variation measure of consumer surplus where the initial level of utility is maintained. Moreover, it is shown that legal rules of compensation are also consistent with this welfare criteria. Competing approaches--replacement cost and opportunity cost methods--do not measure this welfare loss consistent with both the economic and judicial rules of compensation. Estimates of time devoted to household production and the economic value of the benefits produced are derived using a contingent evaluation technique applied to a modest exploratory study involving 60 households.