Pakistan Institute of Development Economics



On Measuring the Social Opportunity Cost of Labour in thePresence of Tariffs and an Informal Sector (The DistinguishedlLecture)

Author: M. Ali Khan

Harberger introduced his influential 1971 essay with thefollowing words. This paper is intended not as a scientific study, noras a review of the literature, but rather as a tract – an open letter tothe profession, as it were – pleading that three basic postulates beaccepted as providing a conventional framework for applied welfareeconomics. The postulates are: (a) The competitive demand price for agiven unit measures the value of that unit to the demander; (b) Thecompetitive supply price for a given unit measures the value of thatunit to the supplier; and (c) When evaluating the net benefits or costsof a given action (project, programme, or policy), the costs andbenefits accruing to each member of the relevant group (e.g., a nation)should normally be added without regard to the individual(s) to whomthey accrue.

M. Ali Khan

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