Welfare economics

Welfare economics is a branch of economics that uses microeconomic techniques to simultaneously determine the allocational efficiency of a macroeconomy and the income distribution consequences associated with it. It attempts to maximize the level of social welfare by examining the economic activities of the individuals that comprise society.

Criticisms

Many doubt whether a cardinal utitity function (or cardinal social welfare function) is of any value. How do you aggregate the utilities of various people that have differing marginal utility of money (ie, the rich and the poor)?

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Some even question the value of ordinal utility functions. They have proposed other means of measuring well-being as an alternative to price indices, "willingness to pay" functions, and other price oriented measures. These price based measures are seen as promoting consumerism and productivism by many. It should be noted that it is possible to do welfare economics without the use of prices, however this is not always done.

Related Topics:
Measuring well-being - Consumerism - Productivism

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Value assumptions explicit in the social welfare function used and implicit in the efficiency criterion chosen, make welfare economics a highly normative and subjective field. This can make it controversial. If these value assumptions are hidden or uncritically accepted, welfare economics could be dangerous.

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Welfare economics techniques are held hostage to their initial starting point. Welfare maximization is optimum relative to the initial starting position.

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Marginal rates of substitution ignores Veblenesque effects.

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