Welfare Calculation

I have some confusion when I calculate the welfare Evaluation, I used FOC condition and (order = 2) to calculate the welfare. from DYNARE’s Output, when I have a model without any distortion (Social planner), so (Expected value of welfare = -53.0044) and i have another model with markup distortion (E(welfare)= -44.5868). my question here:

  • How when I add markup distortion the welfare is higher, it’s not make sense, or I did something wrong?.
  • I used this method to calculate welfare loss/gain; lambda =(EXP((1-0.99)(E(V1-V))-1)*100, the result (8.78%)
    This mean it will be welfare loss or gain?

Thanks a lot

Sorry, could you please anyone give me a hint?

Thanks a lot

  • That depends on what you are comparing/what the difference between the economies is. A markup implies a change in steady states so that people will e.g. work less. But depending on what exactly you are changing when comparing the two economies you might get strange results.

  • You did not explain any of your notation for the welfare comparison and what you are trying to do.