Lecture Public economics (5th edition) - Chapter 5: Equity and social welfare

This chapter distinguish between the Pareto and Bergson criteria for a welfare improvement, discuss Nozick’s entitlement theory and its relevance to the recent history of South Africa, explain how a redistribution of income can be justified in terms of the theory of externalities, distinguish between the cardinal and ordinal social welfare functions, discuss the efficiency implications of policies aimed at redistributing income from rich to poor people.

• • • • • Distinguish between the Pareto and Bergson criteria for a welfare improvement Discuss Nozick’s entitlement theory and its relevance to the recent history of South Africa Explain how a redistribution of income can be justified in terms of the theory of externalities Distinguish between the cardinal and ordinal social welfare functions Discuss the efficiency implications of policies aimed at redistributing income from rich to poor people Implications • Preferred distribution of income • Distribution of income Criteria to assess welfare effects of public policy • Pareto criterion • Bergson criterion Justice in acquisition Justice in transfer Rectification of injustice states that individuals are entitled to acquire things that do not belong to others or do not place others in a worse position than before states that material things can be transferred from one individual to another on a voluntary basis, for example, in the form of gifts, grants, and bequests, or through voluntary exchange states that a redistribution of wealth is potentially justified only if one or both of the irst two principles have been violated • • • Externality argument for redistribution Insurance motive Altruism – – – A redistribution of income can be justified on welfare grounds even if it places one or more individuals in a worse position • • Social welfare function Additive (or cardinal) welfare function – – • Ordinal function • Willingness to work – Income and substitution effects ((dis) incentive effect) • Taxation and subsidisation The expected benefits of a policy of redistribution should be carefully weighed against the possible negative effects it might have on labour supply and on savings and investment, and hence on economic growth in the long term ... A redistribution of income can be justified on welfare grounds even if it places one or more individuals in a worse position • • Social welfare function Additive (or cardinal) welfare function – – • Ordinal function... Explain how a redistribution of income can be justified in terms of the theory of externalities Distinguish between the cardinal and ordinal social welfare functions Discuss the efficiency implications of policies aimed at redistributing income from rich to poor people...• • • • • Distinguish between the Pareto and Bergson criteria for a welfare improvement Discuss Nozick’s entitlement theory and its relevance to the recent history of South Africa