Welfare Measures from Technological Distortions in General Equilibrium

Welfare measures in competitive markets have been the subject of a considerable amount of literature. Mishan [7] demonstrated in a partial equilibrium framework, that producers surplus measures industry quasi-rents of fixed production factors. In contrast to this partial equilibrium approach, Anderson [1] examines welfare measures from a general equilibrium standpoint where all other prices in the economy are allowed to vary. More recently Just and Hueth [6] examine welfare measures arising from a price distortion in a competitive single-product single-factor vertical sector of the economy. They demonstrate that when a market price within the sector is forcibly altered, total change in sector welfare is given by the producer and consumer surplus change measured from the general equilibrium supply and demand functions of the altered market level. Collins [3] has generalized the Just-Hueth results for multi-product, multi-factor industries in a vertical market chain. However, a number of policy questions do not pertain to direct price distortions, but rather to technological distortions' that may arise as a result of changes in technology and/or government regulations. The objective of this paper is to investigate the general equilibrium welfare implications of a technological distortion for multi-product multi-factor vertically related industries. This paper considers the case of an economy comprised of a number of interdependent competitive industries. Each industry is producing multiple outputs which are sold to other industries or to final consumers. Each industry uses multiple inputs purchased from other industries or from initial resource suppliers. Each commodity is assumed to be