welfare-economics-2016 - Welfare Economics Jeffrey Ely...

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Welfare Economics Jeffrey Ely April 2, 2016 This work is licensed under the Creative Commons Attribution-NonCommercial-ShareAlike 3.0 License . Jeffrey Ely Welfare Economics
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Social Choices We will study situations like the following Some public policy decision (the “alternatives”) affects all members of some group (the “society”) and individuals have (typically opposing) policy preferences. Jeffrey Ely Welfare Economics
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Examples Abound Sounds abstract, but its part of everyday life. Examples (items in blue are web links to related stories): Ad placement on Google Rationing Space on an Overbooked Flight Public School Choice . Designer Dress Dibs . Jeffrey Ely Welfare Economics
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Formal Definitions A Social Choice Problem consists of A set of individuals i A set A of alternatives A . For each individual i , a preference ordering i which ranks alternatives. So A i B means that i prefers A over B . (Pairwise rankings, transitivity.) Jeffrey Ely Welfare Economics
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Social Welfare Functions What we are after is a social ranking * . The social ranking 1 Is our principle for deciding which outcomes are “good for society.” 2 Naturally should depend on the preferences of the individuals. 3 This dependence is described abstractly by a Social Welfare Function. Jeffrey Ely Welfare Economics
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A Social Welfare Function Definition A social welfare function is a mathematical function which takes as an input the list of preferences ( 1 , 2 , . . . , n ) and produces as an output a single preference ranking * . Examples: 1 (2 alternatives, odd number of individuals) Majority rule. 2 Plurality Rule (a common voting system.) Details 3 Borda criterion (rank-order, or “point-system” voting.) Details 4 Rawlsian SWF (maximize the welfare of the worst-off individual.) Details Jeffrey Ely Welfare Economics
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Plurality Rule Determine which alternative has the most “top choice votes.” That alternative is placed at the top of the social ranking.
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