Welfare Measurement Under Habit Forming Tastes

This paper examines the implications of habit forming hypothesis for welfare theory. both myopic and rational habit forming models are discussed. First, I analyse the main criteria proposed by myopic habit forming models for measuring individual and social welfare. I show that they are undermined by the same sort of problem: the need of information that cannot inferred from individuals' behaviour. Then I analyse rational habit-forming models. I show that to regain the traditional correspondence between preference-choice-welfare these models need to refer to a cardinal concept of utility. I also show that Harsanyi's correspondence rule for welfare measurements can use an ordinal concept of utility only because the author does not take into account all the consequences deriving from habit-forming hypothesis