Aggregate Consumer Behavior and the Measurement of Social Welfare

This paper describes a new approach to normative economics, combining the theory of social choice with econometric modeling of aggregate consumer behavior. The author first derives a system of aggregate demand functions by exact aggregation over individual demand functions. He then constructs measures of individual welfare from systems of individual demand functions. Finally, the author incorporates these measures into a social welfare function, introducing ethical assumptions based on horizontal and vertical equity. To illustrate the application of this approach, he considers the U.S. standard of living and its cost over the period 1947-85.