On Measuring Welfare ‘Behind a Veil of Ignorance’

Abstract

How should we rank different income distributions? Should we adopt the Rawlsian criterion that focuses on the minimal income in the distribution? Or should we rather maximize the geometric mean, a criterion advocated by gamblers and welfarists alike? This paper microfounds these two criteria by showing that each of them can be obtained by granting veto rights to the members of society ‘behind a veil of ignorance’, where society is represented by the set of regular utilities (Hart 2011). The Rawlsian maximin criterion is obtained by granting each member of society a right to veto acceptance of any candidate income distribution, while the geometric-mean criterion is obtained by granting instead a right to veto rejection of income distributions. This way, the proposed method circumvents the need to arbitrarily choose a representative agent when ranking income distributions. The Rawlsian maximin criterion is further shown to be robust to extending the set of utilities that constitutes “society” to all risk-averse utilities, while the geometric-mean criterion is not as robust.