An economist is evaluating two different economic policies for a society. Policy A leads to an outcome where no individual can be made better off without making someone else worse off, but results in a very unequal distribution of well-being. Policy B also leads to an outcome where no one can be made better off without harming another, but it results in a much more equal distribution of well-being. To formally compare and rank these two outcomes based on the overall good for society, which concept is specifically designed for this task?

Evaluating Policy with a Social Welfare Function

A social welfare function is a tool used to rank different societal outcomes. Its primary limitation is that it can only determine that one outcome is better than another if that outcome makes at least one person better off without making anyone worse off.

Distinguishing Societal Evaluation Criteria

Match each description of a societal objective with the principle or function that best represents it.

Choosing a Public Project

A(n) _______________ is a function used to rank different societal outcomes by aggregating the well-being of all individuals, thereby allowing for comparisons between different efficient allocations based on judgments about equity and distribution.

An economist is tasked with ranking several different, but equally efficient, distributions of resources in a society. To accomplish this task using a social welfare function, what is the most critical and unavoidable judgment the economist must make?

Choosing Among Efficient Outcomes

A policymaker is considering two mutually exclusive projects. Project Alpha generates a large increase in well-being for the wealthiest 10% of the population and a small increase for the poorest 10%. Project Beta generates a moderate increase in well-being for the poorest 10% and no change for the wealthiest 10%. The total increase in well-being across all of society is greater for Project Alpha than for Project Beta. Based on this information, which project would be chosen by a social planner whose goal is to maximize the well-being of the worst-off individual, and which would be chosen by a planner whose goal is to maximize the sum total of well-being in society?