Sustainable Heterogeneity as the Unique Socially Optimal Allocation for Almost All Social Welfare Functions

Harashima, Taiji (2012): Sustainable Heterogeneity as the Unique Socially Optimal Allocation for Almost All Social Welfare Functions.

Abstract

The socially optimal allocation has been regarded to be unspecifiable because of utility’s interpersonal incomparability, Arrow’s general possibility theorem, and other factors. This paper examines this problem by focusing not on the social welfare function but instead on the utility possibility frontier in dynamic models with a heterogeneous population. A unique balanced growth path was found on which all of the optimality conditions of all heterogeneous households are equally and indefinitely satisfied (sustainable heterogeneity). With appropriate government interventions, such a path is always achievable and is uniquely socially optimal for almost all generally usable (i.e., preferences are complete, transitive, and continuous) social welfare functions. The only exceptions are some variants in Nietzsche type social welfare functions, but those types of welfare functions will rarely be adopted in democratic societies. This result indicates that it is no longer necessary to specify the shape of the social welfare function to determine the socially optimal growth path in a heterogeneous population.

• Item Type: MPRA Paper
• Language: English
• Keywords: Sustainability; Heterogeneity; Social Optimality; Social welfare; Social welfare function; Inequality; Evolution
• Subjects: F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F40 - General; D - Microeconomics > D6 - Welfare Economics > D63 - Equity, Justice, Inequality, and Other Normative Criteria and Measurement; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O41 - One, Two, and Multisector Growth Models; I - Health, Education, and Welfare > I3 - Welfare, Well-Being, and Poverty > I31 - General Welfare, Well-Being; J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs > J38 - Public Policy; D - Microeconomics > D6 - Welfare Economics > D64 - Altruism ; Philanthropy; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E20 - General

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