ABSTRACT
INTRODUCTION Policy-makers cannot avoid choices. One economic theory of government behaviour (a theory of choice) postulates that policy-makers’ choices between targets and instruments will be based on their beliefs about the likely results of policies in making people ‘better or worse off’. On this view, the objectives of policy are a means of improving, and ideally of maximising, the utility or welfare of individuals in the community. Thus, if governments are social welfare maximising agencies, the model explains state intervention in the economy as a means of contributing to the welfare of the community. What is meant by policies making people ‘better or worse off’, so contributing to their welfare? When is a change desirable? Welfare economic theory helps with these questions.
