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Aggregation of Utility and Equivalence Scales: A Solution to the Pangloss Critique

Listed author(s):
  • Jo Thori Lind

Definitions of equivalence scales are usually based on a household utility function. This may be founded on an assumption of the household maximizing a welfare function of individual utilities. Basing inter-household comparisons of welfare on this approach is fallacious because households put different weight on the utility of the various household members, a weighting that does not necessarily correspond to an ethically sound aggregation of utility. This is called the Pangloss critique. To solve the problem, I suggest keeping the model of household behavior, but to introduce a new function to aggregate the household members' utilities. Equivalence scales based on this approach are shown to have desirable properties. Copyright 2003 Blackwell Publishing Ltd..

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Article provided by International Association for Research in Income and Wealth in its journal the Review of Income and Wealth.

Volume (Year): 49 (2003)
Issue (Month): 4 (December)
Pages: 555-568

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Handle: RePEc:bla:revinw:v:49:y:2003:i:4:p:555-568
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