Welfare loss, in economics, refers to the reduction in overall societal well-being or economic efficiency resulting from market imperfections or government interventions. It represents the deadweight loss, meaning the net loss of total surplus (consumer and producer surplus) that occurs when supply and demand are not in equilibrium. This loss indicates an inefficient allocation of resources. It quantifies the cost of market distortions.
Context
While a traditional economic concept, welfare loss can be applied to analyze the efficiency of various digital asset markets or blockchain protocols. News or academic discussions might reference welfare loss when examining the impact of high transaction fees, network congestion, or regulatory policies on user utility. Understanding this concept helps assess the economic efficiency of decentralized systems.
Formalizing MEV extraction as a three-stage game of incomplete information proves that Bertrand-style competition harms system welfare, necessitating cryptographic transaction ordering.
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