A Liberal Theory of Social Welfare: Fairness, Utility, and the Pareto Principle

Abstract

Amartya Sen has shown how liberal rights can produce outcomes that everyone would prefer to avoid, thereby violating the Pareto principle. Similarly, Louis Kaplow and Steven Shavell identify potential conflicts between the Pareto principle and notions of "fairness," which give weight to considerations other than the overall utility level of each individual. Whereas Sen claims that the conflict he identifies shows the unacceptability of the Pareto principle as a universal rule, Kaplow and Shavell claim that the conflict they identify suggests a critique of all fairness notions (including liberal rights). I will argue in this paper that both claims are based on questionable assumptions. This paper proposes a middle course that I will argue resolves the supposed conflicts while remaining faithful to both liberal fairness principles and the Pareto principle. This paper will present an example of a social welfare function that can incorporate fairness principles and still remain faithful to the Pareto principle.

JEL Classification: K00, D60, D63