Universal social welfare orderings and risk

Abstract

How to evaluate and compare social prospects when there may be a risk on i) the actual allocation people will receive; ii) the existence of these future people; and iii) their preferences? This paper investigate this question that may arise when considering policies that endogenously affect future people, for instance climate policy. We show that there is no social ordering that meets minimal requirements of fairness, social rationality, and respect for people's ex ante preferences. We explore three ways to avoid this impossibility. First, if we drop the ex ante Pareto requirement, we can obtain fair ex post criteria that take an (arbitrary) expected utility of an equally-distributed equivalent level of well-being. Second, if the social ordering is not an expected utility, we can obtain fair ex ante criteria that assess uncertain individual prospects with a certainty-equivalent measure of well-being. Third, if we accept that interpersonal comparisons rely on VNM utility functions even in absence of risk, we can construct expected utility social orderings that satisfy of some version of Pareto ex ante.

Keywords: Fairness, social risk, intergenerational equity

JEL Classification: D63, D81