chapter  IV
24 Pages

The Objectives of Distributional Policies

In the last chapter we proceeded on the assumption that the basic objective of economic policy was in some sense to maximise the sum total of individual utilities or enjoyments. But it is not at all obvious that this is a suitable criterion. One rather anomalous result of this procedure may serve to throw doubt upon it; the more the policymakers make their interpersonal comparisons of utility in such a way as to emphasise inequalities in total utilities as between different individuals, the less importance does the criterion of maximising total utility attach to the redistribution of income. This paradoxical result is illustrated in Figure 4. Along the horizontal axis we measure an individual's consumption. Up the vertical axis we measure his total utility. Consider two individuals A and B with the same needs and tastes (i.e. the same utility functions) but with different consumption levels, Ca and Cb• Let tile height GH measure 0 ll' i.e. the

total utility of individual A when his consumption is equal to Ca. Consider two utility functions passing through the point H, both with the same slope (i.e. the-same marginal utility of consumption at this point H), but curve 0 1 having much less curvature than curve O2 , For the higher level of consumption of C b at the point D the total utility with curve 0 1 will thus be greater than the total utility of curve O2 (FD > ED). Moreover the slope of the curve 0 1 is also greater than the slope of the curve O2 ,

We suppose individual B to have the same utility curve as A but to have C b instead of only C a units to consume. Consider now taking one unit of consumption from B and giving it to A (dCa = dCb)' With both curves A will gain the same amount of utility dOa; but with curve 0 1 B will lose much more utility than with curve O2 {ill!>1 > dOd· The distributional effect, i.e. the possibilities of increasing total welfare through redistribution, will be much greater with curve O2 than with curve 0 1, i.e. much greater in the case where the inequalities in total utilities are less.·

The criterion of the sum of individual utilities is not concerned with inequalities between utilities. It has nothing to choose between a policy which will result in a given addition to the utility of a poor man and a p~licy which will result in an addition ofthe same amount to the utility of a rich man, although the former policy will result in a less unequal and the latter in a more unequal society. This criterion simply regards a redistribution of income as a possible efficient measure for increasing the sum total of utilities.