Background
Interpersonal comparisons refer to the process of comparing welfare levels across different individuals. Welfare, in this context, is usually measured in terms of utility, which represents the satisfaction or happiness an individual derives from consumption or other activities.
Historical Context
The concept of interpersonal comparisons has long been a central issue in welfare economics. Early economists like Jeremy Bentham emphasized the importance of utility in policymaking, which has deeply influenced subsequent economic theories and policies. More theoretical development in the 20th century, especially related to ordinal and cardinal utility, further nuanced how interpersonal comparisons could be conceptualized and applied.
Definitions and Concepts
Utility Functions
- Ordinal Utility: A series of indifference curves that rank preferences without implying precise distances between them. Ordinal utility can undergo any monotonic increasing transformation without changing its ranking.
- Cardinal Utility: This type measures utility such that differences in its values are consistent. Transformations must be linear, i.e., only affine transformations (U* = a + bU) are permitted.
Non-Comparability and Comparability
- Non-comparable Utilities: Different transformations (f1, f2) can be applied to the utility functions of different individuals, potentially reversing their utility rankings.
- Comparable Utilities: Transformation constraints ensure consistent utility rankings.
- Ordinal Level Comparability: One transformation must be applied to all utilities, maintaining the original ranking.
- Cardinal Unit Comparability: Multiplicative factor b is the same for all, but additive factors may differ.
- Cardinal Full Comparability: Both multiplicative and additive constants are the same for everyone, allowing complete comparison of utility levels and changes.
Major Analytical Frameworks
Classical Economics
In classical economics, welfare was often implicitly assumed to be comparable without deep theoretical consideration of utility.
Neoclassical Economics
Neoclassical economics primarily shifted focus to ordinal utility comparisons, emphasizing preference and choice without assuming cardinal properties.
Keynesian Economics
Keynesians generally embraced a welfare-focused approach, though without deep emphasis on the micro-foundations of interpersonal utility comparison.
Marxian Economics
While not always framed in terms of utility, Marxian analysis includes a focus on individual well-being, exploitation, and relative welfare differences across classes.
Institutional Economics
Stresses the broader social context and institutions influencing welfare, somewhat abstracting from the need for precise utility measurement.
Behavioral Economics
Examines how psychological factors influence individual welfare and decision-making, introducing complexities in utility measurement across individuals.
Post-Keynesian Economics
Often critiques the standard utility frameworks and suggests alternative measures of welfare that consider broader historical and social factors.
Austrian Economics
Skeptical of interpersonal utility comparisons and welfare economics, emphasizing subjective value and individual preference.
Development Economics
Focuses on welfare and utility in the context of economic development, integrating diverse measures of well-being beyond traditional utility.
Monetarism
Less concerned with direct utility comparison, focusing more on macroeconomic stability as a means to enhance overall welfare.
Comparative Analysis
Interpersonal comparisons hinge upon whether and how utilities can be meaningfully compared, which in turn influences welfare policies, taxation, and income redistribution. The variances in comparability and the theoretical implications often determine the practical application in welfare economics, social choice theory, and public policy.
Case Studies
Various countries and economic systems offer contextual insights into how interpersonal comparisons are applied, ranging from policies determined by cost-benefit analysis (considering utility impacts) to those focusing on equality and subjective well-being.
Suggested Books for Further Studies
- “An Essay on the Principle of Population” by Thomas Robert Malthus
- “Welfare Economics” by H. B. Leonard and D. H. Browning
- “Issues in Contemporary Macroeconomics and Distribution” by J. A. Kregel
Related Terms with Definitions
- Utility: A measure of satisfaction or pleasure derived from consumption or activities.
- Social Welfare Function: A function that ranks social states, incorporating individual utilities to form a collective welfare measure.
- Arrow’s Impossibility Theorem: A theorem stating that no social welfare function can convert individual preferences into a community-wide ranking while simultaneously meeting a specified set of criteria.
