Utility Interdependence and Redistribution: Methodological Implications for Welfare Economics and the Theory of the Public Household

Abstract

A rapidly developing literature has focused on utility interdependence as a AbUract basis for a nontraditional approach to redistribution. Discussions in this literature have tended to pursue particular points without reference to the broader context within which such discussions are methodologically situated. Yet an understanding of that context is essential to a reasoned appraisal of much of the literature. This paper attempts to examine that broader context and in doing so to provide clarification of some of the issues which have evolved in the literature. Part one investigates the relationship between the problems which redistribution poses for welfare economics and the theory of the public household. Part two appraises various attempts to circumvent these problems by replacing variousequity rationales for redistribution in the traditional framework with various efficiency rationales. Part three concentrates on the utility interdependence approach often identified with the term "Pareto optimal redistribution" by discussing methodological implications of such an approach for welfare economics and the theory of the public household.

“The Hardest of All the Problems”

“…Urban Institute funding to work on Pareto optimal redistribution was also distributed to researchers at other universities, including John F. Johnston's (1975) work at the University of Delaware and of course James Rodgers, by then a professor at the University of Pennsylvania. In one of his papers, Rodgers (1973) used Pareto optimal redistribution theory to contribute to the growing literature on the design of transfers, arguing that the relative preferability of cash or in-kind transfers depended on whether voters' redistributive preferences were defined over transfer recipients' welfare, income, or consumption.…”