Understanding Welfare maximization Model for Economics is important for location analysis choice and distribution. when equity and efficiency is the most concern over cost and time. can use full to provide municipal services location choice.

1. Welcome to The Presentation
1
Welfare Maximization Models
Course Title: Municipal Services Planning
Course Code: URP 3142
Urban and Rural Planning Discipline, Khulna University
Prepared By:
Student ID: 160406,21,23,38, 150440,45

2. At a Glance
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02
03
04
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Background
Limitation
Model Expression
Basic Assumption
Definition, Aims and Target
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3. Background
3
Several models of location decisions for community facilities have been
developed over the years, to present some models for the location of public
facilities in nodal networks that explicitly maximize social welfare by accounting
for price-elastic demand functions.
In 1975 J. L. Wagner and L. M. Falkson presented
Welfare Maximization Models on Geographic
analysis to assess “The Optimal Nodal Location of
Public Facilities With Price-Sensitive Demand”
Welfare maximization models can be employed to find a better measure of social
welfare than the commonly used variable of accessibility such as a distance-cost
relationship

4. Definition
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Surhone 2010, claim that it is welfare maximization for the majority of
regional residents, achieving a relatively high spatial effect with a low
total cost, based on balancing the efficiency and equity.

5. WHAT IS WELFARE?
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• Welfare is the measure of living standard or utility
• Welfare analysis is concerned with measuring the
living standard or level of utility or in terms of
productivity taking in to account the degree of
efficiency in allocating resources.
• If welfare is concerned about issues of efficiency, how
do we know whether a resource allocation is efficient
or not
• Pareto efficiency is used as a standard measure of
efficiency

6. ECONOMIC EFFICIENCY
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An allocation of resources is efficient if it is not possible to make one or more
persons better off without making at least one other person worse off.
A gain by one or more persons without anyone else suffering is a Pareto
improvement.
When all such gains have been made, the resulting allocation is Pareto optimal
(or Pareto efficient).
 Efficiency in allocation requires that three efficiency conditions are fulfilled
1. efficiency in consumption
2. efficiency in production
3. product-mix efficiency

7. Aims
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The aims of social welfare maximization are related to
1) social goals,
2) the constitutional state organization and forms of government
3) economic policy
4) public finance and budgeting
5) Political goals such as vote maximization
6) adequate political staffing or specific political goals
Especially if the goals express preferences for the delivery of specified clients, such as goals
concerning full coverage, minimum distance access, or serving clients in assisted areas. (Feng,
2013)

8. Targets
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1. To choose the socially optimal levels of service to be provided to each
community
2. To locate the sources of these service units.
The public facility location models presented below are unique in two
respects:
1. They consider the case of price-elastic demand functions
2. They maximize consumers’ plus producers’ surplus explicitly.

9. Basic Assumption
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• Criterion
• Consumers’ surplus
Consumers’ surplus is defined as the sum over all consumers of the difference
between the largest amount they would be willing to pay for a product and the
amount they actually do pay.
• Producers’ surplus
Producers’ surplus is the sum over all producers of the difference between the
revenue they receive for a product and the lowest amount at which they would be
willing to sell it. This surplus notion is the theoretical cornerstone of benefit-cost
analysis (Mishan, 1971)
Efficiency criterion for social welfare should measure the net gains to the
beneficiaries of a public system (value of service minus travel cost to obtain
service) minus the cost of supplying the service.

10. Basic Assumption
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11. Basic Assumption
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Use of producers’ and consumers’ surplus as a measure of efficiency assumes that
1. the marginal utility of income is constant;
2. the existing distribution of income is optimal; and
3. no strong externalities in production or consumption exist.
Under these assumptions the set of facility locations that maximizes producers’ plus
consumers’ surplus is pareto optimal Wagner and Falkson (1975).

12. Pareto- Optimality
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13. Model Expression
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Assume that each member of a community i has a “willingness-to-pay” for a single unit of product per
unit time period. This maximum amount that consumers will pay is denoted by Vi
Suppose the government were to charge a price at each open facility equal to the marginal cost, bj
fj is the fixed cost of production at j.
ai is the total amount demanded at node i.
dij is the distance between demand node i and supply point j.
tij is the transportation rate per unit distance between nodes i and j.
Letting Xij be an assignment variable denoting the fraction of demand at i which is supplied by a facility
at j , and
letting Yj be a zero-one location variable.

14. Model Expression contd.
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• Two environments of the model
• Public fiat model
If consumers can be assigned arbitrarily
to facilities and can be denied service on
jurisdictional or eligibility grounds, then
the location model must be constructed
to reflect an environment which we shall
call Public Fiat.
A public facility system which delivers
service to consumers at their points of
residence operates in an environment
analogous to that of Public Fiat.
• Serve All Comers
If consumers can not be denied service,
and if they must be served at the facility
of their choice, then a model consistent
with a Serve All Comers environment
must be specified.
It assumes that consumers cannot be
denied service and are free to choose any
facility.

15. Limitations
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The objective is limited to be a one-
way efficiency orientation.
The scales of all facilities are
neglected and assumed to be
equal.
The consumers are directed by a
central command to the closest
facility.
From the aspects of theory and
application, currently, it is a bit
difficult to promote this model on a
large scale in practical urban
management and planning because
of the comparatively high
complexity and difficulty finding a
solution.
(Carreras, 1999)

16. 1 2 3
4 5 6
Conclusion
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Organize into
integrated practice
units.
Measure outcomes
and costs for every
patient
Move to bundled
payments for care
cycles
Integrate care
delivery across
separate facilities
Expand excellent
services across
geography
supporting
information
technology platform

17. References
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1. Carreras, M.; Serra, D. (1999) On optimal location with threshold requirements. Socio-Econ. Plan. Sci., 33, 91–
103.
2. Feng, Xiao & Friedrich, Peter. (2013). Basic approaches to a location theory of one public firm. Mit
zusammenfassung: Grundlegende Ansätze zur Standortheorie eines öffentlichen Unternehmens. Discussions
on Estonian Economic Policy. 21. 10.15157/tpep.v21i1.1064.
3. Mishan, E. Cost-Benefit Analysis. New York: Praeger, 1971.
4. Surhone, L.M.; Timpledon, M.T.; Marseken, S.F. Welfare Economics; Betascript Publishing: Whitefish, MT, USA,
2010.
5. Wagner, J., and Falkson, L., "The Optimal Nodal Location of Public Facilities with Price-Sensitive Demand,"
Geographical Analysis, Vol. 7, No. 1, 1975, pp. 69-83.

18. Thank You