Social Choice Theory

Abstract

Traditional welfare economics offers limited help in evaluating economic institutions and outcomes, because it rejects interpersonal welfare comparisons. Welfare economists often espouse the Pareto principle (that A is better than B if somebody prefers A to B and nobody prefers B to A ), but such unanimity in preferences is rarely found. Welfare economists are sometimes tempted to say that A is better than B when A is a potential Pareto improvement over B , but this view is controversial. What else can economists contribute to social evaluation and decision making? The Social Welfare Function and Arrow's Theorem Social choice theory evolved out of an effort to construct better tools for evaluation. Following Bergson (1938) and Samuelson (1947), let us call any ranking of social states that depends on individual welfare a “social welfare function.” Normative principles can be regarded as constraints on acceptable social welfare functions. For example, the principle of the personal good requires that social welfare functions rank A over B if A is better for someone than B , and B is not better for anyone than A. Social welfare functions thus provide a framework for exploring normative principles. Although the framework could in principle be applied to a broad range of evaluative criteria – including nonindividualistic ones – social choice theorists have focused on social welfare functions whose inputs are individual preferences. The Pareto principle, for example, can be characterized as requiring that social welfare functions rank A over B if somebody prefers A to B and nobody prefers B to A . Most economists would regard social welfare functions as by definition welfarist – that is, as restricting the inputs to social welfare functions to information about individual welfare. In the early days of investigating social welfare functions, it was hoped that thinking in terms of such functions could assist economists in identifying additional plausible normative principles that, like the Pareto principle, relate individual welfare and social welfare. If these principles had precise mathematical formulations, then economists would be able to deduce their implications. In this way, economists could carry out a sort of moral mathematics. However, much of the work on social welfare has not taken this form, owing to (a) the limitations of the basic Paretian perspective and (b) the results of early formal inquiries into social choice and evaluation.