Scope, Methods, and Informational Bases of Normative Economics: An Introduction

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Normative economics is a branch of economics that focuses on the evaluation of economic policies and/or institutions, and designs and implements alternative policies and/or institutions that rectify the defects of the current policy and/or institution. The task of this paper is to explain the scope, methods, and informational bases of normative economics. In contrast with positive economics that examines the actual performance of the existing policy and/or institution, normative economics treats policies and/or institutions as variables to be designed, evaluated, and implemented. Reflecting this contrast, the informational basis of positive economics consists of the information that describe the actual performance of economic policies and/or institutions, whereas the informational basis of normative economics may also accommodate counterfactual information that is acquired through imaginary exchange of circumstances among persons. Another feature of normative economics is that it may accommodate not only contemporary persons, but also persons in the far-distant past as well as those in the far-distant future. To exemplify the acute relevance of this expansion of the scope of normative economics, the paper introduces the problem of global warming. It is shown that the informational basis of normative economics should go beyond the traditional informational basis of welfaristic consequentialism or welfarism in short.