Dictionary of Arguments

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269ffWelfare Economics/Neoclassics: Welfare Economics is an essential part of the neoclassical paradigm. It makes use of methodological individualism and pursues an approach of marginal utility. It is orientated utilitarian, i.e. that the respective benefit estimation of the individuals is taken into account. (Bentham's welfare function (1)).
W = W(y1, y2, ..., yn)
Methodical Problem: the individual benefit estimates are in turn aggregated to a social welfare value. This cannot be founded on an individualistic basis.
Mause I 270
Problem: this form of redistribution can lead to injustice if the individual pecuniary situation of individuals is not taken into account.
Solution: one has to go back one step and use the general functional form of a Bergson-Samuelson welfare function. (2)(3)
Welfare maximum: one condition for its achievement is Pareto efficiency.
Def Pareto efficiency: exists when no member of society can be better off without putting another member worse. If this condition is not met, efficiency reserves must still be used.
Another condition for an optimal fiscal policy: there must be no unused potential for exchange profits, i.e. that the individual goods are allocated to the consumers.
Problem: there are theoretically infinitely many allocations that are Pareto efficient, but only one maximizes social welfare.
Def First theorem of welfare economics: any market equilibrium produces Pareto efficiency during full competition and absence of external effects.
Def Second theorem of welfare economics: each of these market equilibria can be achieved through an appropriate distribution of resources in the initial situation without loss of efficiency. (4)


1. Jean Hindriks & Gareth D. Myles, Intermediate public economics, Cambridge, MA, 2013.
2. Bergson, Abram. 1938. A reformulation of certain aspects of welfare economics. Quarterly Journal of Economics 52 (7), 1938, S. 314– 344.
3. Paul A. Samuelson, The foundations of economic analysis. Cambridge, MA 1947.
4. Nicola Acocella, The foundations of economic policy: Values and techniques. Cambridge 1998 S. 72-77.


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Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution.
The note [Author1]Vs[Author2] or [Author]Vs[term] is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition.
Neoclassical Economics
Mause I
Karsten Mause
Christian Müller
Klaus Schubert,
Politik und Wirtschaft: Ein integratives Kompendium Wiesbaden 2018


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