Welfarism and extra-welfarism Flashcards
Define the assumptions of welfarism
- Individuals are the best judget of their own utility
- Individuals are rational, utility maximisers
- Individuals’ utilities can be compared (i.e. one person’s 7 ‘utils’ is the same as another person’s 7 ‘utils’).
Why is welfarism ‘consequentialist’?
It only takes into account outcomes on individuals, based on utility alone.
What is the objective of welfarism?
To devise a set of rules that can be used to completely and consistently rank states of the world.
Why is the Pareto principle not very useful in welfarism?
Pareto optimal states cannot be ranked, and does not consider equity concerns. e.g. if one person has everything and another person has nothing, that is Pareto optimal.
It also considers status quo is value-neutral, so ‘improvements’ are based on the starting point’s welfare.
What does an Edgeworth box show?
It shows distributions and utilities of goods in a 2-person, 2-good world.
Draw an Edgeworth box for Person A and Person B and Goods X and Y.
Show a scenario involving Pareto improvement after an initial endowment using an Edgeworth Box.
If the initial endowment is suboptimal, then the two people can trade their goods and both can reach a higher indifference curve - utility is increased for Person A without decreasing Person B’s utility.
How can an Edgeworth box show which states of the world are Pareto optimal? How can this demonstrate the limitations of the Pareto principle?
There are certain points in the box where Person A cannot be made better off without making Person B worse off. All these points can be plotted in an Edgeworth box, resulting in a contract curve that shows all Pareto optimal states.
All of these points are Pareto optimal, however as Pareto optimal states cannot be ranked, there is no way to decide (using the Pareto principle) which of these points is best.
Describe a Kaldor-Hicks improvement.
This is where an improvement in welfare occurs that could make some people worse off, but if the gain to those whose welfare improves is greater than those for whom it gets worse, it is still an improvement in welfare. Therefore, compensation could be paid out to the losers, then it is an improvement.
What are the criticisms of the Kaldor-Hicks principle?
The main issue is that the compensation that negates the loss in welfare only theoretically needs to be in place - an actual payment would not need to be made, thus it can make other worse-off.
This was described by Reinhardt (1992) who put forward the notion that if someone wishes to punch someone else, they could do this so long as they agreed to pay compensation to the person being punched that would compensate their disutility. However, according to the Kaldor-Hicks principle, this exchange wouldn’t actually need to take place in order for the event to be welfare improving.
What is a social welfare function?
A function that gives a complete ranking of states of the world based on socially optimal oucomes.
Draw the social welfare functions of: Bergson-Samuelson, Pareto and utilitarian. Describe their shape.
Bergson-Samuelson - Convex to origin, showing a social preference against inequality.
Pareto - Right angle, showing nobody can be made worse off - utility can only improve.
Utilitarian - Diagonal, it is only interested in total utility between the two people, not the distribution of that utility.
What is non-welfarism?
Any alternative theories that reject welfarism e.g. outcomes based more than just utility
What are criticisms of welfarism in health economics?
- Rational choice and utility maximisation is irrelevant to healthcare behaviours
- Welfarism’s basis in individualism excludes community values
- Utility is a flawed measure of individual wellbeing
Explain why utility is a flawed measure of individual wellbeing.
Amartya Sen developed the capability approach, which assesses an individual’s capability and means to achieve lives they value, rather than having the freedom to do so.
What is extra-welfarism?
A form of non-welfarism that is sometimes used interchangeably. In the context of health economics, Coast (2009) argued that extra-welfarism is simply maximising health rather than utility.
How are states ranked in extra-welfarism?
Society welfare is increased when health is maximised, and individual preferences are used to value health states - assuming equal weight for each unit of health.
What is ‘sum ranking’ and what criticism does it get?
The standard approach to maximisation - where individual utilities or health are added up and ranked according to aggregate utility.
It is critiques because it is deemed to ignore equity concerns, and other alternative factors may be important in determining which state of the world is optimal.
What are some criticisms of extra-welfarism?
- Only looks at health, not health and utility
- Assumes health maximisation i
