A Behavioral Theory of Economic Welfare and Economic Justice: A Smithian Alternative to Pareto Optimality

International Journal of Social Economics, Vol. 27, pp. 1098-1131, 2000

Posted: 17 Jan 2010

Date Written: 2000

Abstract

Details a behavioral theory of economic welfare that overlaps and extends the global theoretical framework contained in Pareto Optimality, with significant public policy implications. The essence of this framework is contained in Adam Smith’s the Wealth of Nations where it is argued that the economic welfare of society cannot be augmented if the material level of well-being of the working population is reduced, even if the economy experiences growth. Moreover, it is argued that there need not be an equity-efficiency trade-off in a competitive market economy to the extent that wages positively affect productivity and do not increase production costs. Therefore, shifting from a low to a high wage economy is welfare improving. Smith, in effect, argues that one can have economic ‘justice’ and economic efficiency where the former is necessary to the latter. The behavioral model of economic welfare paints a dynamic picture of economic welfare in contradistinction to the static framework provided by Pareto Optimality wherein the conditions of Pareto Optimality need not be violated.

Keywords: Economic welfare, Justice, Pareto optimality, Smithian Alternative, Adam Smith

JEL Classification: D03, I31, D63

Suggested Citation

Altman, Morris, A Behavioral Theory of Economic Welfare and Economic Justice: A Smithian Alternative to Pareto Optimality (2000). International Journal of Social Economics, Vol. 27, pp. 1098-1131, 2000. Available at SSRN: https://ssrn.com/abstract=1536788

Morris Altman (Contact Author)

University of Dundee ( email )

Nethergate
Dundee, DD1 4HN
United Kingdom

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