Any Non-welfarist Method of Policy Assessment Violates the Pareto Principle: Reply

In our 2001 article in the Journal of Political Economy, we show that any non-welfarist method of policy assessment violates the Pareto principle. In their Comment, Fleurbaey, Tungodden, and Chang question whether our result is fully general without imposing what they regard to be strong assumptions (transitivity and independence). However, as we explain in this Reply, their argument is irrelevant to the thrust of our article. Specifically, their argument concedes that if any particular society uses any nonwelfarist principle, there may be a conflict with the Pareto principle. This result means that the vast multitude of principles proposed by policy-makers, philosophers, and others indeed fall within our demonstration. Forthcoming, Journal of Political Economy (2004) *Harvard University and National Bureau of Economic Research. We are grateful to the John M. Olin Center for Law, Economics, and Business at Harvard University for financial support. 1 Any Non-Welfarist Method of Policy Assessment Violates the Pareto Principle: Reply Louis Kaplow and Steven Shavell  2003. Louis Kaplow and Steven Shavell. All rights reserved. In Kaplow and Shavell (2001), we show that any non-welfarist method of policy assessment violates the Pareto principle. In particular, we demonstrate that if a social welfare function from complete descriptions of the world to the real numbers does not depend solely on individuals’ utilities, and also satisfies a continuity condition regarding a single good, then there must exist situations in which the function rates one state of the world higher than another even though all individuals strictly prefer the second state of the world to the first. As stated in our article, the import of this conclusion concerns the general use of nonwelfarist principles by the public at large, policymakers, and philosophers – for instance, the notion that rewards should be based on merit or that the punishment should fit the crime – and the occasional use of non-welfarist principles by economists – such as the view that horizontal equity should influence tax policy or that individuals’ capabilities rather than their utilities should be the focus of social decisions. Our result implies that none of these non-welfarist approaches can be accepted if one endorses the Pareto principle. The thrust of Fleurbaey, Tungodden, and Chang’s (FTC) (2003) comment is that our result, although valid, relies on what they regard as strong assumptions and thus does not apply to every non-welfarist principle. They acknowledge that our result applies “[i]f we consider only social choices based on a unique profile of individual utility functions in society” (p. 1383), and they go on to say that “[w]elfarism, however, as this concept is understood in social choice