Rationales for public policy: distributional and other goals
6 important questions on Rationales for public policy: distributional and other goals
The specification of a social welfare function, which converts the utilities of all individuals into an index of social utility, provides an alternative approach to defining economic efficiency and aggregate welfare. Rather than the Pareto principle, efficiency is defined as:
Three different social welfare functions are:
- Utilitarian: consequentialist; asserts that actions are to be evaluated in terms of the preferences of individuals for various consequences. Both egalitarian (declining marginal value of wealth) and democratic (everyone's utility counts). Offers weak protection for fundamental individual rights, because it does not guarantee minimal allocations to individuals.
- Rawlsian: maximizes the utility received by the person deriving the lowest utility, a maximin principle. Behind the veil of ignorance, in an original position, people would deliberate as equals -> social contract.
- Multiplicative: avoids allocations with very low levels of utility to any individuals.
One important issue that arises in distributional analysis are measurement issues. Income as commonly measured deviates from purchasing power in three important ways that complicates distributional analysis:
- Not all wealth is fully reflected in measured income (e.g., ownership of housing)
- Government tax and transfer programs alter the amount of 'disposable' income that people have available to purchase private goods.
- Individuals usually consume as members of households. Not all members necessarily contribute income towards the consumption. But changing family composition and problems of definition make household income a less-than-idea basis for measuring economic well-being.
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Distributional analyses often fail to identify all the groups affected by policies. Especially likely to be missed are silent losers, those who fail to voice protest against the policies causing their losses. This can happen for three reasons:
- They unexpectedly suffers losses as individuals. At the time of adoption of the policy, they do not anticipate being losers; when they do suffer losses, protest offers little prospects for personal gain.
- Losers may fail to protest because they do not connect their losses to the policy.
- Losers may be silent because they are not yet born.
Political feasibility is an instrumental value because:
Revenues and expenditures are instrumental because:
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