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A Note on Generalized Transfers Principle with Reduced-Form Social Welfare Functions

Author

Listed:
  • Mickael Beaud

    () (Lameta, Université Montpellier I)

  • Stéphane Mussard

    () (Lameta, Université Montpellier I and GREDI, Université de Sherbrooke, Canada)

Abstract

In most welfare analyses, especially in the literature on normative inequality measurement, it is a commonplace to assume a direct relationship between the distribution of income and social welfare. As a result, this relationship is formally summarized by a single function, called a reduced-form social welfare function. Hence, with reference to some transfer principles, normative considerations are introduced and the shape of the reduced-form is accordingly restricted. In this note, we investigate and question the relevance of this approach. After recognizing that any reduced-form social welfare function merges two elements of very different nature individuals' self-interested preferences over income (an empirical element) and those of the society over utilities (a normative element) it is clear that it is problematic or at least misleading to make assumptions about the shape of the reduced-form social welfare function according to normative considerations only. However, we show that consistency can be restored whenever individuals' preferences can be represented by completely monotone utility functions.

Suggested Citation

  • Mickael Beaud & Stéphane Mussard, 2011. "A Note on Generalized Transfers Principle with Reduced-Form Social Welfare Functions," Cahiers de recherche 11-06, Departement d'Economique de l'École de gestion à l'Université de Sherbrooke, revised Jul 2011.
  • Handle: RePEc:shr:wpaper:11-06
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    File URL: http://gredi.recherche.usherbrooke.ca/wpapers/GREDI-1106.pdf
    File Function: First version, 2011
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    More about this item

    Keywords

    Social Welfare; Inequality; Transfer Principles; Completely Monotone Utility Functions;

    JEL classification:

    • D3 - Microeconomics - - Distribution
    • D6 - Microeconomics - - Welfare Economics
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue

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