Welfare economics: towards a more complete analysis
London, 2004
Abstract
Welfare economics serves as a foundation for public policy, yet traditional models frequently conflate preference satisfaction with actual well-being. A more complete analysis requires a distinction between utility and happiness, acknowledging that biological drives, ignorance, and relative-income effects cause significant divergences between what individuals choose and what maximizes their welfare. While Arrow’s impossibility theorem challenges social choice, the revelation of preference intensity through cardinal utility allows for the construction of a utilitarian social welfare function based on the principle of finite sensibility. In practical application, the “third-best” theory provides a robust framework for policy-making, suggesting that under conditions of informational poverty, first-best rules often remain the most efficient course of action. This leads to the “dollar is a dollar” principle, which posits that specific economic policies should prioritize efficiency while leaving income redistribution to the broader tax-transfer system. Furthermore, incorporating inframarginal analysis of the division of labour clarifies the role of specialization and infrastructure in driving economic progress. Given the evidence that rising per capita income does not linearly increase aggregate happiness in advanced societies, welfare analysis must account for environmental externalities and the zero-sum nature of positional competition. Ultimately, grounded economic guidance necessitates an interdisciplinary approach that moves beyond preference satisfaction toward the objective measurement and pursuit of happiness. – AI-generated abstract.
Quotes from this work
[W]hile the problem of interpersonal comparability of utility is a tricky one, it is not insoluble in principle. It is conceivable that, perhaps several hundred (or a thousand) years from now, neurology may have advanced to the stage where the level of happiness can be accurately correlated to some cerebral reaction that can be measured by a ‘eudaimonometer’. Hence the definition of social welfare [in terms of the sum total of individual happiness] is an objective definition, although the objects are the subjective feelings of individuals.