Introduction to welfare economics

Abstract

This is a revised version of Francesco Forte’s introductory lecture on welfare economics delivered in Charlottesville when he first arrived at the University of Virginia. It was then reproduced in the author’s mimeographed book “Introduction to welfare economics”, published by the Thomas Jefferson Center of the University of Virginia in 1961. In the “old welfare economics”, three fundamental approaches may be distinguished. Pareto’s “ophelimity” requires that someone is made better off and no one is made worse off. A similar problem is present both in Wicksell, by the rule of the unanimous consent of the electorate representative, and in the Italian School of Public Finance that requires an open competition aimed at assembling a majority that pursues a similar solution. Finally, Pigou’s paternalistic approach combines maximum national income with its optimal distribution. In the “new welfare economics”, the approach in terms of Pareto’s compensation principle does not generate a stable equilibrium; the social welfare function approach formalizes Pigou’s approach with the inclusion of paternalistic value judgements. The way out consists in combining Paretian ordinal choice with Wicksellian unanimity, with the Italian school’s suggestion of competition in collective choices, or with both.