Economics and Ethics
Kapitel 6
Kapitel 6
Kartei Details
| Karten | 14 |
|---|---|
| Sprache | English |
| Kategorie | VWL |
| Stufe | Universität |
| Erstellt / Aktualisiert | 24.06.2014 / 13.03.2015 |
| Weblink |
https://card2brain.ch/box/economics_and_ethics5
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| Einbinden |
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Efficiency
Less demanding, compared to utlitarianism
central to welfare economics (THE central concept)
Backgrióund definitions
Welfare economics: inverstigation of methods to obtain a social ordering over possible states of the world based only on utility information
social ordering: comparison of all states of the world that permits one to rankeach one as "better than", ,"worse than" or "equally good as" as every other --> implies moral judgements!
state of the world: a complete description of variables of interest
Cardinal and ordinal utility
welfare economics assumes welfarism: one need only information about individual utility
utility functions assign numbers to states (allocations of goods or money)
two ways of interpretation:
1. cardinal: mnumerical differences in utility matter
2. ordinal: only order or ranking of states matter
Assumptions (Annahmen) of Utlitarianism
Interpersonal comparability of utilities: Needed to max. total utility
Cardinal utility: needed to rank different states across individuals
Economists prefer weaker assumption:
Avoid interpersonal comparison
Prefer ordinal over cardinal utility
Assumptions of economic efficiency
Efficiency requires only ordinal utility
efficiency involve two additional value judgements
1. Individualism: preference satisfaction: social orderings should be based on individual orderings / raionality
2. pareto principle
Advantages of Pareto Principles
Weak informational requirements
-only an ordinal ranking of individual preferences over states of the world is required
-interpersonal comparison of utility are also not necessary
The pareto criterion liberated normatve economics from utilitarianism
critism of pareto concepts
1. pareto optimum is not unique
2. Incompletness of pareto principle: cannot rank all states, even some efficient states over inefficient
3. strong ethical assumptions: indifference to distributional issues; conservations of no-harm principle
4. relevance; few real world situations with no losers
General Equilibrium (Gleichgewicht) Theory
Partial equilibrium analysis: studies individual markets
Genreal equilibrium analysis: studies all markets and agents in the economy simutaneously
Pure exchange economy: no production
Standard preferences: indifference curves are non-intersecting, negativley sloped, dense, convex and monotonic
Pareto Improvement
a change that makes at least one person better off without making anyone lese worse off
Pareto Efficient (Optimal)
a state which: No pareto improvements are possible, no can be made better off without making someone else worse off
Compensation Principle
a state s is better than a state t, if, in state s, it is hypothetically possible to undertake costless redistribution to a state that is pareto superior to t
Result: The compensation principle always ranks any pareto optimum superior to any insufficient allocation
Strength- Compensation principle
1. Complete ordering
2. Not conservative: all pareto efficient states are preferred
3. Relevance: loosers allowed
Weaknesses -Compensation principle
1. Optimum still not necessarily unique
2. Relevance: transfers not usually costless
3. strong ethical assumption: indifference to distributional issues
Analysis of efficiency concepts
Efficiency rests on: Weak information requirements, welfarism
Critiques of welfarism: Utility does ot represent well-being, well-being might be pluralistic and not comparable
fairness or justice: are these fair and efficient solutions? Does justice belong to a different category of morality?
