On Shrinking the Planner's Choice Set in Multiple Wellbeing Comparisons
22 Pages Posted: 12 Dec 2016 Last revised: 16 Jan 2017
Date Written: January 14, 2017
Behind a Veil of Ignorance, the Social Planner's problem of choosing from a collection of diverse wellbeing distributions is akin to a problem of individual decision making under uncertainty. This interpretation provides a rationale for applying the concept of Stochastic Dominance Optimality in wellbeing analysis to detect the distributions with the highest levels of shared prosperity. A complementary concept of Stochastic Dominance Inferiority can be used to detect distributions with the greatest potential for poverty reduction. Linear Programming problems for implementing these twin concepts are derived from the ﬁrst principles of Expected Utility. Empirical examples using aggregated distributions of income and wealth demonstrate the potential improvement upon the discriminatory power of multiple pairwise comparisons in the face of unbalanced economic growth.
Keywords: Welfare Economics, Choice Under Risk, Stochastic Dominance, Linear Programming
JEL Classification: C1, C6, D3, D6, D8, I3
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