THE RECENT DEBATE ON WELFARE CRITERIA

Abstract

THREE areas of development may be distinguished in theoretical welfare economics, (1) that which, aiming at complete generality, seeks to develop the formal apparatus necessary for attaining a unique social optimum. The set of conditions determining the boundary of production possibilities, or of the utility possibilities, is the more acceptable product of this approach, no rules for the selection therefrom of a unique social optimum, other than purely tautological ones, being provided. However, although recent contributions within this area have elaborated optimal conditions to cope with indivisibilities, non-convexity, and other such awkward possibilities, more prominence has been given to discussions about the theoretical possibility of constructing, under certain circumstances, an apparatus of social choice to enable the unique social optimum to be reached. Though it lends itself to some fascinating philosophical speculation one must be inordinately optimistic to expect welfare propositions to emerge in the foreseeable future from these investigations. (2) The more traditional interest in resource allocation closely associated with the development of the theory of value had elements of both a general and a partial approach to welfare problems. On the one hand there was a stress on the allocative rules-in particular, the equality of marginal products in all lines of production-often coupled with the belief that every additional sector in which the rule was met placed the economy closer to optimum. On the other, there was the development of such partial concepts as consumers' surplus and rents and, to some extent, social cost, often in connexion with a comparison of the merits of various types of taxes and bounties. In this field can also be placed the propositions of second-best theories and many recent contributions intent on refining the concepts of consumers' surplus, social cost, and external effects. (3) Beginning with the so-called New Welfare Economics, an interest over the last twenty-five years has sprung up in the possibility of formulating simple welfare criteria. The attempt to order all possible social states is consciously repudiated in the search only for sufficient criteria, based on widely acceptable value judgements that enable the community to choose between specified alternative forms of economic organization. What hope there is for evolving a practical welfare economics seems to me to lie in this last field of endeavour. Justification for commending it to the attention of readers can count on more than this belief, however.