Welfare Economics of Prof. Amartya Sen

Published: 2021-06-29 06:57:45
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This paper is on Welfare economics of Prof. Amartya Sen

Introduction:
Amartya Sen came into public conscience when he was bestowed upon the noble prize for economics in 1998 for his contribution towards welfare economics and his study of famine and its causes. Before going into his contribution to welfare economics we will touch upon the main facets of this branch of economics.
Welfare Economics:
A branch of economics that uses microeconomic techniques to evaluate economic well-being, especially relative to competitive general equilibrium within an economy as to economic efficiency and the resulting income distribution associated with it.
There are two mainstream approaches to welfare economics: the early neoclassical approach and the new welfare economics approach. The neoclassical approach takes utility to be cardinal. It is based upon the philosophy of utilitarianism. In utilitarianism people always have to act in ways that benefits all of humanity, which produces the greatest overall amount of goods in the world. This theory propagates that the overall utility of a society should be maximum irrespective of personal preferences. Utilitarism is by origin a philosophical approach. It is a moral idea about how to make the world a better place. In utilitarism people always have to act in ways that benefits all of humanity, which produces the greatest overall amount of goods in the world. The emphasis is clearly on consequences, not intentions. People must not act out of self-interest, but always need to consider what is best for society. (Hinman, 2003)
It can be said that utilitarianism is a theory, which is about achieving the greatest collective utility. Decisions should be made in accordance with people's moral preferences, because the individual could best decide what the consequences of his behavior is. When everybody realizes what is best for society, the common good will eventually emerge.

The new welfare approach differs with its concepts in terms of ordinal utility approach. Welfare economics typically takes individual preferences as given and stipulates a welfare improvement in Pareto efficiency terms. Given an initial allocation of goods among a set of individuals, a change to a different allocation that makes at least one individual better off without making any other individual worse off is called a Pareto improvement. An allocation is defined as "Pareto efficient" or "Pareto optimal" when no further Pareto improvements can be made. The ideal Pareto efficient state criteria are : when no consumer can be made better off without making others worse off; when it is impossible to increase the production of any good without reducing the production of other goods; when marginal physical product of a factor must be the same for all firms producing a good and when production processes must match consumer wants.
Further there can be distributions which can be Pareto efficient, but the optimum solution is to maximize the social indifference curve. The intermediate form of social indifference curve can be interpreted as showing that as inequality increases, a larger improvement in the utility of relatively rich individuals is needed to compensate for the loss in utility of relatively poor individuals. One individual being better off than other individuals and not leaving other individuals worse off is possible in societies, where political power is not related to economic power. But this is individualistic approach and rejects any 'organic' concept of State or sovereign authority.

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