It is a compelling task in making economic assessment in this issue. Firstly, it originated from the theoretical base in which the correct welfare analysis is a debatable concept due to various approach for the equilibrium. Secondly, we realize the political economy’s complexity for any policy implementation if any scheme should be take in place.
Let us begin with a simple notion of the policy change. The government aims to pull out the BBM subsidy and converts it into a specific cash transfer to targeted beneficiaries (the poor). The reasons are assumed to be limitation of government budget and a good intention to improve welfare consequences from the old policy scheme.
Now, we can start to examine these two reasons using agent’s preferences in the economy.
Efficiency Analysis Using Preferences: The Utility of Poor People
Since the government is focusing on the welfare of poor people, we can start to analyze the welfare changes for poor individual and put aside for a while the welfare consequences for the rich. We will reconcile those two later.Read more here!
By Rus'an Nasrudin