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Concavity of Utility, Concavity of Welfare, and Redistribution of Income

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  • Louis Kaplow

Abstract

The marginal social value of income redistribution is understood to depend on both the concavity of individuals' utility functions and the concavity of the social welfare function. In the pertinent literatures, notably on optimal income taxation and on normative inequality measurement, it seems to be accepted that the role of these two sources of concavity is symmetric with regard to the social concern about inequality in the distribution of income. Direct examination of the question, however, reveals that this is not the case. Concavity of utility has a simple, direct effect on the marginal social value of redistribution, as might be expected, whereas concavity of the social welfare function has a more subtle influence, one that in some cases may not be very significant. The implications of this difference are examined for some standard forms of utility and welfare functions, including particular versions that appear in the optimal income taxation literature.

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  • Louis Kaplow, 2003. "Concavity of Utility, Concavity of Welfare, and Redistribution of Income," NBER Working Papers 10005, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:10005
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    Cited by:

    1. Louis Kaplow, 2005. "Why measure inequality?," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 3(1), pages 65-79, April.
    2. Patrick Rehill & Nicholas Biddle, 2023. "Fairness Implications of Heterogeneous Treatment Effect Estimation with Machine Learning Methods in Policy-making," Papers 2309.00805, arXiv.org.
    3. Louis Kaplow & David Weisbach, 2011. "Discount rates, social judgments, individuals’ risk preferences, and uncertainty," Journal of Risk and Uncertainty, Springer, vol. 42(2), pages 125-143, April.
    4. Louis Kaplow, 2005. "The Value of a Statistical Life and the Coefficient of Relative Risk Aversion," Journal of Risk and Uncertainty, Springer, vol. 31(1), pages 23-34, July.
    5. Juan Carlos Cordoba & Genevieve Verdier, 2005. "Lucas vs. Lucas: On Inequality and Growth," Macroeconomics 0511021, University Library of Munich, Germany.

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    More about this item

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement

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