Concavity of Utility, Concavity of Welfare, and Redistribution of Income

18 Pages Posted: 5 Nov 2003

See all articles by Louis Kaplow

Louis Kaplow

Harvard Law School; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: September 2003

Abstract

The marginal social value of income redistribution is understood to depend on both the concavity of individuals' utility functions and the concavity of the social welfare function. In the pertinent literatures, notably on optimal income taxation and on normative inequality measurement, it seems to be accepted that the role of these two sources of concavity is symmetric with regard to the social concern about inequality in the distribution of income. Direct examination of the question, however, reveals that this is not the case. Concavity of utility has a simple, direct effect on the marginal social value of redistribution, as might be expected, whereas concavity of the social welfare function has a more subtle influence, one that in some cases may not be very significant. The implications of this difference are examined for some standard forms of utility and welfare functions, including particular versions that appear in the optimal income taxation literature.

JEL Classification: D31, D63, H21, H23

Suggested Citation

Kaplow, Louis, Concavity of Utility, Concavity of Welfare, and Redistribution of Income (September 2003). Harvard Law and Economics Discussion Paper No. 437. Available at SSRN: https://ssrn.com/abstract=463241 or http://dx.doi.org/10.2139/ssrn.463241

Louis Kaplow (Contact Author)

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