Distribution-Neutral Welfare Ranking-Extending Pareto Principle
14 Pages Posted: 18 Apr 2017
Date Written: March 16, 2017
Abstract
The well known Pareto criterion used in the context of efficiency and welfare has to do with absolute changes whereas in every domain of economic behaviour inequality or relative changes has become a major concern. We propose an inequality-preserving or distribution neutral Pareto criterion-the strong Pareto superior or SPS allocation which preserves the initial distribution and makes everyone better off. Our main result is that whenever there is a gain in the aggregate value of the relevant attribute, there exists a unique counterfactual allocation which is SPS.
Keywords: Pareto superiority, strong Pareto superiority, inequality
JEL Classification: A100
Suggested Citation: Suggested Citation