Chapter 9 - MEASURABILITY, COMPARABILITY AND THE AGGREGATION OF INTERGENERATIONAL WELFARES

Summary

Market Mechanism and Inter generational Distribution of Welfare

It was noted in Chapter 2 that while a competitive equilibrium of a private ownership economy has several virtues (e.g. that under certain conditions it is Pareto efficient), ensuring a reasonable distribution of welfare among individuals is not one of them. This should hardly be surprising. The equilibrium is contingent on the distribution of initial endowments in the private ownership economy. There is nothing in the construction to rule out a distribution of initial endowments which leads to an undesirable distribution of welfare at an equilibrium. Although a commonplace, this observation immediately invites a few clarificatory remarks. The issue that we are concerned with here is the distribution of welfare. To the extent that the consumption of goods and services affect individual welfare we are, by implication, concerned with the distribution of goods and services. But this raises several points. A diverse pattern of consumption within a population is not an evidence of an undesirable welfare distribution. Man 1 may prefer wine to beer and man 2 may have the opposite preference. If we now observe man 1 consuming wine and man 2 beer, the pattern of consumption is no doubt diverse. But one would be inclined to say that this is a superior state of affairs to one where the two persons share the wine and beer equally. This suggests that diversity of consumption patterns can be justified on the ground that preferences differ among individuals.