What is SWF= U(A)+U(B)? , Min[U(A), U(B)] and U(A)*U(B)? Is there a policy?

What is SWF= U(A)+U(B)? , Min[U(A), U(B)] and U(A)*U(B)?

Is there a policy?

Expert Solution

SWF= U(A)+U(B) is a social welfare function which is in additive form.

Such type of Social Welfare Function is called "Utilitarian Social Welfare Function". Also, known as Benthamite Welfare Function. It sums the utilities of all agents to arrive at social welfare function.

SWF = Min[U(A), U(B)]

It is called Rawlsian Social Welfare Function. It counts the welfare of the worst off agent. Welfare of person with least utility is considered in deciding about the social welfare function

SWF = U(A)*U(B) is a multiplicative social welfare function.

There are different policy implications for these social welfare functions. For example, the optimal distribution of income chosen by society who follows Rawlsian SWF is different from the income distribution chosen by the Utilitarian SWF.

Rawlsians believe that economic inequalities will be accepted in society only when the benefits are attached to the needy or poor one. Agents utilities are treated as Perfect Complements.

However, Utilitarian SWF considers agents utilities as Perfect Substitutes.

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Rahul Sunny answered 9 months ago

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