Week 4 Lecture_Welfare

# Week 4 Lecture_Welfare - Week 4 Social Choice and Welfare...

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Week 4 Social Choice and Welfare

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Social Choice Different economic states/outcomes will be preferred by different individuals. How can individual preferences be “aggregated” into a social preference over all possible economic states? Aggregating rule: “social choice function” (individual preferences one social preference).
Aggregating Preferences x , y , z denote different economic choices. 3 agents; Bill, Bertha and Bob. Use simple majority rule to decide on a choice?

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Aggregating Preferences Bill Bertha Bob x y z y z x z x y More preferred Less preferred
Aggregating Preferences Bill Bertha Bob x y z y z x z x y Majority Rule Results x beats y y beats z z beats x Majority rule does not always aggregate transitive individual preferences into a transitive social preference. No socially best alternative!

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Aggregating Preferences Bill Bertha Bob x(1) y(1) z(1) y(2) z(2) x(2) z(3) x(3) y(3)
Aggregating Preferences Bill Bertha Bob x(1) y(1) z(1) y(2) z(2) x(2) z(3) x(3) y(3) x-score = 6 y-score = 6 z-score = 6 No state is selected! Rank-order voting is indecisive in this case. Rank-order Rule results (low score wins).

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Desirable Aggregating Rule Properties 1. If all individuals’ preferences are complete, reflexive and transitive, then so should be the social preference created by the aggregating rule. 2. If all individuals rank x before y then so should the aggregating rule. 3. Social preference between x and y should depend on individuals’ preferences between x and y only.
Properties 1. If all individuals’ preferences are complete, reflexive and transitive, then so should be the social preference created by the aggregating rule. (Majority rule violates: not transitive! Rank order rule violates: not complete!) 2. If all individuals rank x before y then so should the aggregating rule. 3.

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## This note was uploaded on 09/06/2010 for the course FBE ECON2113 taught by Professor Franchsica during the Fall '09 term at HKU.

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Week 4 Lecture_Welfare - Week 4 Social Choice and Welfare...

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