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Aggregation of Utility and Equivalence Scales: A Solution to the Pangloss Critique
Author(s) -
Lind Jo Thori
Publication year - 2003
Publication title -
review of income and wealth
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.024
H-Index - 57
eISSN - 1475-4991
pISSN - 0034-6586
DOI - 10.1111/j.0034-6586.2003.00104.x
Subject(s) - equivalence (formal languages) , weighting , economics , aggregate (composite) , welfare , function (biology) , econometrics , microeconomics , mathematical economics , expected utility hypothesis , utility theory , mathematics , medicine , materials science , discrete mathematics , evolutionary biology , biology , market economy , composite material , radiology
Definitions of equivalence scales are usually based on a household utility function. This may be founded on an assumption of the household maximizing a welfare function of individual utilities. Basing inter‐household comparisons of welfare on this approach is fallacious because households put different weight on the utility of the various household members, a weighting that does not necessarily correspond to an ethically sound aggregation of utility. This is called the Pangloss critique. To solve the problem, I suggest keeping the model of household behavior, but to introduce a new function to aggregate the household members’ utilities. Equivalence scales based on this approach are shown to have desirable properties.