Distributive Justice Lecture 2: Welfarism 1I Kymlicka chapter 2 I John Stuart Mill, p 166 in Solomon...

Distributive Justice Lecture 2: Welfarism 1

Distributive JusticeLecture 2: Welfarism 1

Hilde Bojerwww.folk.uio.no/hbojerhilde.bojer@econ.uio.no

February 4, 2011

Distributive Justice Lecture 2: Welfarism 1

Reading

2

I Bojer chapter 4

I Kymlicka chapter 2

I John Stuart Mill, p 166 in Solomon and Murphy

Distributive Justice Lecture 2: Welfarism 1

What is welfarism

Welfarism

3

I Utilitarianism

I Economic welfare theory

Note: Kymlicka writes about utilitarianism only,not economic welfare theory.But most of his text applies equally to both

Distributive Justice Lecture 2: Welfarism 1

Utilitarianism

Utilitarianism

4

I Jeremy Bentham 1748 – 1832

I John Stuart Mill 1806 – 1873

Contemporary?Mainly economists, but they are influential

Distributive Justice Lecture 2: Welfarism 1

Utilitarianism

Utilitarianism

5= The greatest possible happiness for the greatest possible numberMathematically impossibleImplications for distributional policy ?Happiness is not distributableCannot be handed out by the government –or anyone elseCannot be transferred from one person to anotheris not an economic good.

Distributive Justice Lecture 2: Welfarism 1

Utilitarianism

Utilitarianism cont.

6In order to implement utilitarian policy:we must know

I What is meant by happiness

I How to measure happiness

I Which factors determine happiness

Distributive Justice Lecture 2: Welfarism 1

Utilitarianism

What is happiness?

7What is meant by happiness?Happiness = welfare = utilityUtilityutilitarianismStrictly : what is usefulThe individual herself decides whether she is happy, and how happyPreference utilitarianismThe opposite would be paternalism

Distributive Justice Lecture 2: Welfarism 1

Utilitarianism

How to measure happiness

8In my textbook: not possibleBut I seem to have been wrongThere is a rich literature on the subjectPlease see the two websites I have postedLayard is not the most recent, but still influential andrepresentativeThere are various national surveys, in Norway and other countriesThese seem to show thataggregate happiness increases with national incomeup to a certain level

Distributive Justice Lecture 2: Welfarism 1

Utilitarianism

9Above this level: income does not increase happinessIn cross section surveyshappiness usually increases with incomeConclusion?Happiness depends (perhaps) on relative, not absolute, incomein rich countriesBut there is no consensus on this point

Distributive Justice Lecture 2: Welfarism 1

Utilitarianism

What determines happiness?

10Reasonable assumption, borne out by empirical studies:Income is one factor, if not the only one.We will discuss as if income is the only factorOK if the effect of income can be separated from other factors anddiscussed separately

Distributive Justice Lecture 2: Welfarism 1

Utilitarianism

11I shall drop the term happinessand substitute utilityand/orindividual welfareEconomicst use the term utility exclusivelyWelfare, or individual welfare, is mostly used by philosophersIndividual welfare is distinct from social welfare

Distributive Justice Lecture 2: Welfarism 1

Utilitarianism

Two important concepts

12Utility functionDescribes how utility varies with incomeWe assume that the higher the income, the more utility you derivefrom itMarginal utilityMU is the increase in utility from 1 unit increase in incomeWe assume that the higher the income, the smaller MUalso seems consistent with empirical research

Distributive Justice Lecture 2: Welfarism 1

Utilitarianism

13Pause for diagram Figure 4.1 in textbook

Distributive Justice Lecture 2: Welfarism 1

Utilitarianism

Utilitarianism

14Greatest happiness of the greatest number:means more preciselyDistribute a given income so that the sum of utilities is as great aspossibleFor two persons, Anne and Peter:Maximise utility of Peter + utility of AnneWhen Peter’s income + Anne’s income is a constant (given)Given size of the cake

Distributive Justice Lecture 2: Welfarism 1

Utilitarianism

Maximising sum of utilities

15More generallyMaximise U1 + U2 + .....Unsubject to a given total income

Distributive Justice Lecture 2: Welfarism 1

Utilitarianism

Utilitarian distribution

16Policy implications of utilitarianismFor a give amount of income:(A given size of the cake)Distribute it so that all marginal utilities are equal.

Distributive Justice Lecture 2: Welfarism 1

Utilitarianism

Utilitarian distribution

17Why?An example:Assume thatAnne’s marginal utility = 5Peter’s marginal utility = 2We take 1 krone from Peter and give to AnneTotal utility decreases with 2 units lost by PeterBut increases with 5 units gained by AnneTotal utility increases with 5 - 2 = 3.

Distributive Justice Lecture 2: Welfarism 1

Utilitarianism

Utilitarian distribution

18If the MU’s are diffferent, it will always be possible to increasetotal utilityby redistributing from a person with low MUto a person with high MU

Distributive Justice Lecture 2: Welfarism 1

Utilitarianism

19Remember: The higher the income, the lower the MUSo: redistributing from a low MUto a higher MUwill implytaking from a higher income and giving to a lower

Distributive Justice Lecture 2: Welfarism 1

Utilitarianism

20ProvidedAll utility functions are equalIf all people have the same preferencesutilitarianism implies that all incomes should be equal.and is therefore regarded as an egalitarian theory

Distributive Justice Lecture 2: Welfarism 1

Utilitarianism

21Do all people have equal preferences?What if preferences are not equal?Then utilitarianism implies neither equality of welfarenor equality of income

Distributive Justice Lecture 2: Welfarism 1

Utilitarianism

Utilitarian distribution

22Pause for diagramBojer: fig 4.3

Distributive Justice Lecture 2: Welfarism 1

Utilitarianism

Welfare-egalitarian distribution

23Equality of welfare, not the utilitarian equality of MUsPause for diagramBojer: fig 4.2

Distributive Justice Lecture 2: Welfarism 1

Utilitarianism

24What are the reasons for different preferences?

Distributive Justice Lecture 2: Welfarism 1

Ethical properties of utilitarianism

Ethical properties of utilitarianism

25

1. Ethical equality

2. Ethical individualism

3. Humanism

4. Respect for preferences

5. Consequentialism

Distributive Justice Lecture 2: Welfarism 1

Ethical properties of utilitarianism

Ethical properties of utilitarianism cont

26Comments:1. Ethical equality: All individuals count equally2. Ethical indidualism

I No group rights (or wrongs)

I No common good

I No discrimination

Distributive Justice Lecture 2: Welfarism 1

Ethical properties of utilitarianism

Ethical individualism

27Does not imply that utilitarianism excludespublic goodse.g. EnvironmentDefencePublic transportationetc etcThe environment is relevant to the extent that itaffects the welfare of one or more individuals

Distributive Justice Lecture 2: Welfarism 1

Ethical properties of utilitarianism

283. HumanismOr anthropocentrismIt is HUMAN welfare that countsAnimals and natureto the extent that they affect the welfare of individual humansNot all utilitarians will agreeIs it possible to include the welfare of animals in total welfare?

Distributive Justice Lecture 2: Welfarism 1

Ethical properties of utilitarianism

294. Respect for preferencesAll preferences?Children? Animals?

Distributive Justice Lecture 2: Welfarism 1

Ethical properties of utilitarianism

30Distinguished utilitarian: John Harsanyi:Anti-social preferences should not be includedBut how do we decide which preferences to respect and which toignore?And who decides?

Distributive Justice Lecture 2: Welfarism 1

Ethical properties of utilitarianism

31On preferences, and what is meant by utilityPlease read Kymlicka carefully

Distributive Justice Lecture 2: Welfarism 1

Ethical properties of utilitarianism

325. ConsequentialismOpposite to deontological theoriesRule utilitarianismAct utilitarianismWhich preferences should decide on the rules?(If society shapes preferences)