ABSTRACT
This chapter considers first the Arrow “general possibility theorem,” second the “general theory of the second best” and third the problems related with other-regarding preferences – that is, altruism and such motives incorporated in individual preferences. Kenneth J. Arrow understands a social welfare function as a function with the individual levels of preferences as arguments and an ordinal evaluation of social welfare as the dependent variable. The aggregate social welfare, then, would be determined by individual welfares in the same way that the welfare of an individual in contemporary economic theory would be determined by maximization of her preferences. Preferences are relevant to welfare economics insofar as they are preferences among one’s own qualia, but preferences over the experiences of others, or over such abstractions as the distribution of income, need to be treated differently. Perhaps the challenge faced by welfare economics in the latter twentieth century was less internal than external.
