Introduction

While this list is certainly not exhaustive, it shows some of the major reasons as to why, even in a growing economy, a significant number of people will incur substantial losses. For the individuals concerned, their condition will in no way improve by their knowing that for the whole of society gains by far outweigh losses. On the contrary, from the purely individual perspective, it is even quite plausible that the divergence between their own misfortune and other people’s good fortune should make them perceive their own situation as even worse. For this reason, accounting for relative changes in individual well-being should be expected to play an important role in the assessment of welfare as yielded by a given state of or change within an economy. However, while the complexity of the interactions and, thus, the individuals’ mutual influences on their respective well-being increased constantly over the last centuries, economists seemed to be

unable to account for this change by the development of effective procedures for the aggregation of social welfare from individual well-being. The history of economic thought-from utilitarianism to social choice theory-even testifies to a rising uneasiness and incapability of dealing with the problem of interpersonal comparisons of well-being, eventually culminating in Arrow’s (1951) impossibility theorem. While summarizing the latter development, sections 1.2 and 1.3 also allow for the identification of two of its major causes. First, from the methodological perspective, there is a marked tendency to render the individual the central unit of analysis. Moreover, while with the rise of subjectivism the individual is granted complete autonomy over her decisions and actions, the interdependence of different individuals’ decisions and of the preferences on which these decisions are based-that is, the social influence on them-is basically rejected. This closely relates to the second point, that questions of allocation are clearly given priority over questions concerning the distribution of goods. While the allocation of goods according to individual preferences is far from being a trivial problem, there is at least no need for the invocation of normative assumptions that could not easily be shared by a large majority of humans: efficient allocation in the sense that, for a given set of individuals, maximum total utility is derived from the suitable allocation of a given set of goods is generally considered as a positive contribution to welfare. The latter argument can obviously not be maintained for most questions of distribution. Stances as different as capitalism and egalitarianism are cases in point. While most people basically accept a worsening of their personal situation as long as the realized costs appear to be sufficiently small, temporary in nature, and the chance of being compensated for them by future gains seems to be realistic, the extent and the quality of tolerated divergence of living conditions varies widely between cultures. The latter fact may indeed appear somewhat discouraging for an economist trying to develop a (general) theory that describes the contribution of states or changes of distribution within a group to the welfare of this group.