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- Title
Policy Discrimination with and without Interpersonal Comparisons of Utility.
- Authors
Mandler, Michael
- Abstract
Can the Pareto criterion guide policymakers who do not know the true model of the economy? If policymakers specify ex ante preferences for agents, then Pareto improvements from a distorted status quo are usually possible, and with more commodities than states, one can implement almost every Pareto optimum. Unlike the standard second welfare theorem, planners cannot dictate allocations: agents must trade. Unfortunately ex ante preferences impose interpersonal comparisons. If policymakers merely aim to maximize some social welfare function then optimal policies form an open set; hence small changes in the environment do not necessitate any policy response. Planners with symmetric information about agents can sometimes intervene without making interpersonal comparisons.
- Subjects
ECONOMIC policy; ECONOMIC models; ECONOMICS; PARETO optimum; WELFARE economics; PUBLIC welfare
- Publication
Economic Theory, 2007, Vol 32, Issue 3, p523
- ISSN
0938-2259
- Publication type
Article
- DOI
10.1007/s00199-006-0122-6