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==Social Welfare== | ==Social Welfare== | ||
The controversy among economists concerning the concept of social welfare is not dwelt on in the article because it has had little effect upon the practice of economics, but it may be of interest | The controversy among economists concerning the concept of social welfare is not dwelt on in the article because it has had little effect upon the practice of economics, but it may be of interest | ||
to philosophers and students of economics. The debate started in the 1920s with the publication of Pigou's "Economics of Welfare" | to philosophers and students of economics. | ||
The debate started in the 1920s with the publication of Pigou's "Economics of Welfare" | |||
<ref>[http://www.econlib.org/Library/NPDBooks/Pigou/pgEW.html Arthur Pigou,: The Economics of Welfare Macmillan 1932 (first published: 1920)]</ref>. Pigou observed that a unit increase in income | <ref>[http://www.econlib.org/Library/NPDBooks/Pigou/pgEW.html Arthur Pigou,: The Economics of Welfare Macmillan 1932 (first published: 1920)]</ref>. Pigou observed that a unit increase in income | ||
adds more to the welfare of poor man than it adds to that of a rich man, and concluded that social welfare would be increased by a transfer from the rich to the poor. The first dissent came from Lionel Robbins, who argued that Pigou's analysis was faulty because it required interpersonal comparisons of welfare<ref> Lionel Robbins: "Interpersonal Comparisons of Utility", ''Economic Journal'' December 1938</ref>, and urged a return to | adds more to the welfare of poor man than it adds to that of a rich man, and concluded that social welfare would be increased by a transfer from the rich to the poor. The first dissent came in 1938 from Lionel Robbins, who argued that Pigou's analysis was faulty because it required interpersonal comparisons of welfare<ref> Lionel Robbins: "Interpersonal Comparisons of Utility", ''Economic Journal'' December 1938</ref>, and urged a return to the "unanimity rule" which had been proposed by Vilfredo Pareto, which stated that it could not be assumed that welfare would increase unless there would be some gainers and no losers | ||
<ref> Vilfredo Pareto: ''Manual d’Economic Politique'', Manuel Giard 1927</ref>. | <ref> Vilfredo Pareto: ''Manual d’Economic Politique'', Manuel Giard 1927</ref>, and the accompanying concept of Pareto-efficiency. That was followed in 1939 by a proposal by Nicholas Kaldor to escape the interpersonal comparison problem by adopting a "compensation principle" under which a change would be deemed to increase efficiency if it could increase the welfare of its gainers after they had compensated the losers <ref> Nicholas Kaldor "Welfare Propositions in Economics and Interpersonal Comparisons of Welfare" ''Economic Journal 49 1939</ref>, which was endorsed by Sir John Hicks <ref> John Hicks: "The Foundations of Welfare Economics", ''Economic Journal'' September 1939</ref>, became known as the the "Kaldor-Hicks criterion", but it was widely rejected as implying an ability to make interpersonal comparisons of welfare. (The claim that such comparisons could be avoided if the compensation was actually the paid, encountered objections arising from the formidable difficulties of determining the correct payments). An elaboration of the Hicks-Kaldor criterion known as the Scitovsky criterion was open to similar objections. | ||
The next development was the Arrow-Debreu proof that, on the assumptions noted in the article, an interacting system of markets could reach an equilibrium in which all markets clear simultaneously <ref>Kenneth Arrow and Gerard Debreu: "The Existence of an Equilibrium for a Competitive Economy", ''Econometrica'', vol. XXII 1954 </ref> (known as the "existence theorem" and referred to in some texts as the first fundamental theorem of welfare economics) and the publication of the two theorems set out in the main article <ref> Kenneth Arrow: "An Extension of the Basic Theorem of Classical Welfare Economics", '' Proceedings of the Second Berkeley Seminar on Mathematical Statistics and Probability'' University of California Press 1951</ref>. | |||
<ref> Kenneth Arrow: "A Difficulty in the Concept of Social Welfare", ''Journal of Political Economy'' 58(4) August, 1950</ref> | |||
<ref> Samuelson Foundations of Economic Analysis Harvard University Press 1947</ref> | <ref> Samuelson Foundations of Economic Analysis Harvard University Press 1947</ref> | ||
Revision as of 09:54, 18 April 2008
Social Welfare
The controversy among economists concerning the concept of social welfare is not dwelt on in the article because it has had little effect upon the practice of economics, but it may be of interest to philosophers and students of economics.
The debate started in the 1920s with the publication of Pigou's "Economics of Welfare" [1]. Pigou observed that a unit increase in income adds more to the welfare of poor man than it adds to that of a rich man, and concluded that social welfare would be increased by a transfer from the rich to the poor. The first dissent came in 1938 from Lionel Robbins, who argued that Pigou's analysis was faulty because it required interpersonal comparisons of welfare[2], and urged a return to the "unanimity rule" which had been proposed by Vilfredo Pareto, which stated that it could not be assumed that welfare would increase unless there would be some gainers and no losers [3], and the accompanying concept of Pareto-efficiency. That was followed in 1939 by a proposal by Nicholas Kaldor to escape the interpersonal comparison problem by adopting a "compensation principle" under which a change would be deemed to increase efficiency if it could increase the welfare of its gainers after they had compensated the losers [4], which was endorsed by Sir John Hicks [5], became known as the the "Kaldor-Hicks criterion", but it was widely rejected as implying an ability to make interpersonal comparisons of welfare. (The claim that such comparisons could be avoided if the compensation was actually the paid, encountered objections arising from the formidable difficulties of determining the correct payments). An elaboration of the Hicks-Kaldor criterion known as the Scitovsky criterion was open to similar objections.
The next development was the Arrow-Debreu proof that, on the assumptions noted in the article, an interacting system of markets could reach an equilibrium in which all markets clear simultaneously [6] (known as the "existence theorem" and referred to in some texts as the first fundamental theorem of welfare economics) and the publication of the two theorems set out in the main article [7].
- ↑ Arthur Pigou,: The Economics of Welfare Macmillan 1932 (first published: 1920)
- ↑ Lionel Robbins: "Interpersonal Comparisons of Utility", Economic Journal December 1938
- ↑ Vilfredo Pareto: Manual d’Economic Politique, Manuel Giard 1927
- ↑ Nicholas Kaldor "Welfare Propositions in Economics and Interpersonal Comparisons of Welfare" Economic Journal 49 1939
- ↑ John Hicks: "The Foundations of Welfare Economics", Economic Journal September 1939
- ↑ Kenneth Arrow and Gerard Debreu: "The Existence of an Equilibrium for a Competitive Economy", Econometrica, vol. XXII 1954
- ↑ Kenneth Arrow: "An Extension of the Basic Theorem of Classical Welfare Economics", Proceedings of the Second Berkeley Seminar on Mathematical Statistics and Probability University of California Press 1951
- ↑ Kenneth Arrow: "A Difficulty in the Concept of Social Welfare", Journal of Political Economy 58(4) August, 1950
- ↑ Samuelson Foundations of Economic Analysis Harvard University Press 1947
- ↑ Ian Little A critique of Welfare Economics Oxford Paperbacks 1960
- ↑ Colin Camerer and Ernst Fehr "When Does Economic Man Dominate Social Behaviour?" in Science 6th January 2006