Www.buseco.monash.edu.au/centres/che/ Business and Economics Centre for Health Economics Welfarism vs Extra-welfarism John McKie Centre for Health Economics

www.buseco.monash.edu.au/centres/che/

Business and EconomicsCentre for Health Economics

Welfarism vs Extra-welfarism

John McKieCentre for Health Economics

April, 2010

www.buseco.monash.edu.au/centres/che/Business and EconomicsCentre for Health Economics

Introduction

• Welfarism ‘asserts that social welfare ... is a function of only individual welfare (or utility) and judgements about the superiority of one state of the world ... over another are made irrespective of the non-utility aspects of each state.’

(A. Culyer, ‘The Normative Economics of Health Care Finance and Provision’ (1991), p. 67)

• Extra-welfarists argue that utility is not the only relevant argument, or indeed even the most important argument, in the social welfare function. They argue that health, not utility, is the most relevant outcome for conducting normative analysis in the health sector.’

(J. Hurley, ‘An Overview of the Normative Economics of the Health Sector’ (2000), p. 63)

• Welfarism and non-welfarism incompatible?


Introduction

Outline:

1. Welfarism and welfare economics

2. Theories of personal welfare: hedonism, preference-based theories, objectivism

3. Welfarism, communitarianism and deontology

4. Nussbaum’s extension of Sen’s capability approach

5. Extra-welfarism

6. Conclusions


Welfarism

• Distributive neutrality

– Utilitarianism: sum ranking

– The maximin principle: Rawls

– The Pareto criterion

• Welfarism confines the ‘evaluative space’ to individual welfare or utility: only information about individual welfare or utility is necessary to judge whether there has been (or would be) a change in social welfare.

• Ethical objections to utilitarianism, the Pareto criterion, etc.


Welfarism

• The ‘four key tenets’ of the neo-classical framework:

–Utility maximization (individuals are self-interested utility maximizers)

–Individual sovereignty (individuals are the best judges of their own welfare)

–Consequentialism (utility is derived only from outcomes, not processes or intentions)

–Welfarism (social welfare is a function only of utility)

• Auxiliary assumptions in the context of applied welfare economics:–Willingness-to-pay as a monetary metric for utility

–Market allocation as a reference standard

–A separation of efficiency and equity with an almost exclusive focus on efficiency

(J. Hurley, ‘An Overview of the Normative Economics of the Health Care Sector’ (2000), pp. 60-62)


Welfarism

• The ‘four key tenets’ of the neo-classical framework:

–Utility maximization (individuals are self-interested utility maximizers)

–Individual sovereignty (individuals are the best judges of their own welfare)

–Consequentialism (utility is derived only from outcomes, not processes or intentions)

–Welfarism (social welfare is a function only of utility)

• Brouwer, Culyer et al.

• ‘If there is a single tenet of the four that characterises welfare economics, and only welfare economics, it would seem to be the tenet of welfarism’ (W. Brouwer, A. Culyer, et al., ‘Welfarism vs. Extra-welfarism’ (2008), p. 327).

• Why is this important?


Welfarism

• How are we to understand individual welfare?

• Three main approaches:

–Hedonism

–Preference-based theories

–Objective theories


Hedonism

• What would be best for an individual, or enhance their welfare, is what would make their life happiest.

• ‘We want to consume products that satisfy our preferences, so going from the analysis of products to the analysis of preference is going a layer deeper, but what we want ultimately is happiness or true welfare ... not just preference satisfaction.... Ultimately it is the degree of happiness that counts, more so than preference.’

(Yew-Kwang Ng, Welfare Economics: Towards a More Complete Analysis (2004), pp. 258-9)

• Do we only value happiness?

– A party vs a Shakespearean tragedy, a documentary on the Nazis or a Sylvia Plath biography?

– Freud


Hedonism

• Do we only value states of mind?

– The person who does not want to be deceived, or wants to make a scientific discovery, or to write music or poetry that others will enjoy.

– What we really desire is actual occurrence of the relevant outcomes rather than a mere belief in their occurrence when this belief might be mistaken. We do not want to live in a fool’s paradise … we want the real thing … even if this illusion were subjectively indistinguishable from the real thing’.

(J. Harsanyi, 'Utilities, Preferences, and Substantive Goods’ (1997), pp. 129-145)


Preference-based Theories

• What would be best for someone, or enhance their welfare, is what would best fulfil their desires or preferences.

• Defective preferences:

– Ill-informed preferences

– Irrational preferences

– Remote preferences

– Trivial preferences

• Restrictions falsifiability?


Objective Theories

• Certain things are good or bad for us, whether or not we want to have the good things, or to avoid the bad things. Eg: friendship, meaningful work, self respect, aesthetic experience, recreation, religion.

• How does something get on the list?


Objective Theories


• How does something get on the list? Basic needs


Objective Theories



• How do we determine basic needs?


Objective Theories



• How do we determine basic needs? Constructivism


Objective Theories



• How do we determine basic needs? Constructivism

• The items should be ‘customary, or at least widely encouraged’ in the society to which an individual belongs. Basic needs are those that are necessary for participation in ‘the community’s style of living’ (P. Townsend, Poverty in the United Kingdom: A Survey of Household Resources and Standards of Living (1979), p. 249).

• Will the things on the list enhance an individual’s welfare if they don’t want or value them?


Welfarism and Other Theories

• Welfarism and communitarianism

– Insufficiently robust sense of community: emphasis on individualism, materialism, a failure to recognize that we are ‘embedded’ in social roles and communal relationships, can only flourish in a community, etc.

– Compatible with welfarism

– Genuine alternative

– Irreducible social goods

– ‘Individuals cannot by definition possess [irreducible social] goods. Rather they are features of society … [which] are intrinsically valuable in the constitution of the goodness or badness of states of affairs’ (C. Gore, ‘Irreducible Social Goods and the Informational Basis of Amartya Sen’s Capability Approach’ (1997), p. 243).

– Unique properties of societies

– Good for society / good for individuals?

– Social welfare individual welfare

– Welfarism falsifiable (preference-based accounts)



• Welfarism and deontology

– Deontology: rights, duties, obligations

– People have a right to a decent minimum level of health care. Equal access to health care (e.g. by the disabled or those living in remote areas) is a right.

– Society or the government has an obligation to provide ….

– This is compatible with welfarism: e.g. a Rawlsian SWF.

– Genuine alternative: the promotion of some rights will enhance social welfare independently of any effect upon the welfare of individuals.

– A communitarian claim is ‘a duty owed by the community [to an individual, and] the carrying out of that duty is not just instrumental but is good in itself ’ (G. Mooney, ‘Communitarian Claims as an Ethical Basis for Allocating Health Care Resources’ (1998), p. 1176).

– Welfarism falsifiable



• Welfarism and non-consequentialism

– ‘Social institutions can be valued for themselves and not just for ... [their] consequences’ (G. Mooney, ‘Communitarianism and Health Economics’ (2001), p. 47).

• The welfarist view: social institutions are not good or valuable in themselves, they are good just for their consequences – i.e. their effects upon us.

• Welfarism falsifiable

• Mooney is not just saying that social institutions can be valued for their process utility (as well as their outcome utility), but that social institutions can be valued for themselves – i.e. they have intrinsic value (and not just instrumental value).


Capabilities

• Nussbaum’s ten ‘central human capabilities’ (M. Nussbaum, ‘Wellbeing, Contracts and Capabilities’ (2005), pp. 41-2).

1. Life. Being able to live to the end of a human life of normal length ....

2. Bodily health. Being able to have good health; to be adequately nourished ....

3. Bodily integrity. Being able to move freely from place to place; to be secure against violent assault, including sexual assault and domestic violence ....

4. Senses, imagination and thought. Being able to use the senses ... Being able to think and reason [in a way] informed by an adequate education ... Being able to use imagination in connection with ... Works of one’s own choice, religious, literary, musical....


Capabilities

5. Emotions. Being able to have attachments to things and people outside ourselves ... to love those who love and care for us ....

6. Practical reason. Being able to form a conception of the good and to engage in critical reflection about the planning of one’s life ...

7. Affiliation. Being able to live with others ... to engage in various forms of social interaction ... having the social bases of self-respect ....

8. Other species. Being able to live with concern for and in relation to animals, plants and the world of nature.

9. Play. Being able to laugh, to play, to enjoy recreational activities.

10. Control over one’s environment. Being able to participate effectively in political choices that govern one’s life....


Capabilities• Functionings and capabilities

• Objective list accounts focus on functionings, the capability approach focuses on the range of functionings available to people.

• Individual social

• The capabilities could be determined socially, or derived empirically, and could differ from society to society (P. Dolan et al., ‘Do We Really Know What Makes Us Happy? A Review of the Economic Literature on the Factors Associated with Subjective Well-Being’ (2008), pp. 94-122).


Capabilities• ‘This approach does not ignore people with disabilities, and in general its

whole rationale is to address persistent inequalities and disadvantages, both physical and social ... through a principled commitment to affirmative action, to getting all citizens above the threshold on all major capabilities.’ (M. Nussbaum, ‘Wellbeing, Contracts and Capabilities’ (2005), pp. 43)

• Nussbaum: ‘it is a notorious fact about utilitarianism that it cannot directly rule out slavery, or the oppression of women, or the misery of the poor.’ (‘Wellbeing, Contracts and Capabilities’ (2005), pp. 41-2)

• Welfarism is not committed to utilitarianism. A welfarist could accept the items on Nussbaum’s list (or a similar empirically derived list) as a framework for social policy. A welfarist would look at the implications for individual welfare, including the welfare of the worst off.


Extra-welfarism

• There are two versions of extra-welfarism.

• The first puts the focus exclusively on health, but may neglect certain ‘indirect benefits’ of health care.

– An intervention to reduce unwanted pregnancies may lead to improved educational opportunities and thus impact on an individual’s quality of life through routes other than health (C. Swann et al. (2003), Teenage Pregnancy and Parenthood).

– An intervention to reduce alcohol consumption may impact on quality of life through changes in criminal behaviour, not just health (S. Waller et al. (2002), Prevention and Reduction of Alcohol Misuse).

• The second allows health, functionings, capabilities, utility …. ‘The emphasis [on health] is in principle not exclusive’ (A. Culyer, ‘The Normative Economics of Health Care Finance and Provision’ (1991), p. 91).

• What ‘indirect benefits’ should be included, and how they should be weighted relative to health and each other, could be determined socially.


Extra-welfarism

• Is it possible for a welfarist to hold that social welfare in the health sector is a function primarily of health?

• The division of labour.

• Social welfare will be maximized if health is the primary objective in the health sector, a safe and reliable transport system is the objective in the transport sector, clean air and water are the objectives in the environmental sector, and so on.

• The mission of government agencies ‘is not to advance overall welfare. [They] are created and limited by statutes that define their legal purposes and limit their powers and procedures. Agencies should advance overall welfare only to the extent that doing so involves a particular agency’s mission and expertise.’ (M. Adler & E. Posner, New Foundations of Cost-Benefit Analysis (2006), pp. 185-6)


Extra-welfarism

• Social welfare is a function of individual welfare or utility, but health-related social welfare – social welfare in the health sector – is a function primarily of health (e.g. QALYs).

• Global welfarism (i.e. a welfarist ‘SWF’) and local extra-welfarism (i.e. an extra-welfarist ‘HR-SWF’).

• This provides a rationale for the ‘decision maker approach’. Why the focus on health (rather than on utility more generally) in the health sector?

– ‘Under the decision-maker approach, the relevant arguments in the objective function are defined by the decision-maker … decision-makers have declared that producing health is the primary objective of the health care system’ (J. Hurley, ‘An Overview of the Normative Economics of the Health Care Sector’ (2000), pp. 64).

– The real reason is that decision-makers, health economists and the public implicitly recognize the cogency of the ‘division of labour’ argument.


Conclusions

• ‘Welfarism’ should not be used as shorthand for ‘welfare economics’. They need to be carefully distinguished. It is possible to accept welfarism and reject consumer sovereignty, willingness to pay, the Pareto criterion, and so on.

• It is not incompatible with welfarism that society’s health (and other) resources should be distributed fairly. What amounts to a fair distribution might be given a utilitarian interpretation, or a Rawlsian interpretation, or a Paretian interpretation. All of these are compatible with welfarism.

• A welfarist can accept the benign things that communitarians say: that we are too individualistic, lack a robust sense of community, etc. A welfarist can agree that social welfare would be increased if there was more co-operation, mutual respect, sharing etc.


Conclusions

• A welfarist can accept the efficacy of rights and duties. In particular, having rights in place (e.g. the right to a decent minimum of health care) and corresponding obligations (e.g. upon the government to provide such a minimum) can play an important role in enhancing the welfare of the worst off.

• Welfarism is falsifiable. If some things are good for society independently of their effect upon the welfare of individuals (as some communitarians, deontologists and non-consequentialists argue) then welfarism is false.

• Maintaining that health should be the primary focus in the health sector is not incompatible with welfarism. Global welfarism is not incompatible with local extra-welfarism.

www.buseco.monash.edu.au/centres/che/

Business and EconomicsCentre for Health Economics

Welfarism vs Extra-welfarism

John McKieCentre for Health Economics

April, 2010

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Www.buseco.monash.edu.au/centres/che/ Business and Economics Centre for Health Economics Welfarism vs Extra-welfarism John McKie Centre for Health Economics