Question

What is the purpose of Social Welfare Functions? What problem or issue do they attempt to address in market economies?

How do SWFs attempt to solve this?

Explain the difference between the Utilitarian SWF and the Rawlsian SWF.

Answer 1

Purpose of Social Welfare Functions:

The purpose of Social Welfare Functions is to provide the Government with simple guidelines to achive an optimum level of income by ranking the social states as under less desirable, more desirable, and indifferent.

Issues of social welfare functions:

A major drawback in the concept of social welfare functions is that it assumes every individual acts in the same way. This concept is restricted towards the dynamic behaviour of individuals.

Hence, if we consider a market economy, a social welfare function cannot estimate a dynamic change in the demand of market.

SWFs attempt to solve this issue:

There are 2 theories of SWF which helps in solving the issues of SWF.

1) Rawlsial theory of justice

2) Utilitarianism theory

Difference between Utilitarian Theory and Rawlsian Theory:

Utilitarian theory propagates that an action is said to be right when it produces happiness, and is said to be wrong when it does not produce happiness in an individual. This theory also relates to the individuals who are affected by the actions.

Rawlsion Theory or the Theory of Justice is an alternative thery to the Utilitarian Theory. This theory states about ethics, which the Utilitarian theory has not mentioned. John Rawls has stated the equal liberty of individuals which the people have a right to benefit from fair opportunities.

So the major difference we can conclude is that Utilitarian Theory deals with happiness of individuals and Rawlsian Theory deals with liberty of individuals.