Academic journal article Journal of Management Information and Decision Sciences

A Utilitarian Perspective on Rawls's Difference Principle

Academic journal article Journal of Management Information and Decision Sciences

A Utilitarian Perspective on Rawls's Difference Principle

Article excerpt

INTRODUCTION

Bentham (1789) introduced the utilitarian tradition of analysing social welfare by having a goal of achieving the greatest good for the greatest number, to the economics profession. Researchers that followed were interested in the aggregate sum of utilities, but little attention initially was paid to the distribution of utilities across individuals. These concepts were the precepts to modern welfare-theoretic analyses (Charlot, Gaigne, Robert & Thisse, 2006). One aspect of that tradition is the literature on "optimal taxation." As Mankiw et al. (2009) note:

"The standard theory of optimal taxation posits that a tax system should be chosen to maximize a social welfare function subject to a set of constraints. The literature on optimal taxation typically treats the social planner as a utilitarian: that is, the social welfare function is based on the utilities of individuals in the society" (Mankiw, Weinzierl & Yagan, 2009).

Rawls (1999) explored the issues in a different dimension by introducing the concept of distributive justice. One of his most important contributions was the introduction of the difference principle. The difference principle requires that social and economic policy actions (to address inequality) be structured so that they are of the greatest benefit to the least-advantaged members of society. Sen (2009) noted that if redistributive policy actions were to be taken, he believed that formal equality of opportunities were necessary and sufficient conditions for increasing distributive justice. By this he meant eradicating all barriers to education; lowering barriers that obstruct the ability to obtain any position and the elimination of barriers to accessing jobs. This paper compares and contrasts what would happen if a Rawlsian government (RG), had as its objective function maximizing the utility of the poorest social group and compare that economic state to one where a utilitarian government (UG) existed that had as its principle objective maximizing the total utility of its entire society but subject to the constraint of a targeted level of inequality. Each government chooses tax parameters to achieve their respective goals under balanced budget constraints. There is a large "optimal tax" literature. Mirlees' (1971) paper on optimal non-linear income taxation started the discussion. Several authors have used numerical simulations to explore the progressivity of the tax schedule, paying particular attention to where the elasticity of labour supply plays a crucial role, e.g. Stern (1976)), ability distributions and social objectives (e.g. Atkinson (1973); Tuomala (1984), who uses a relatively general social welfare function and explores the implications of varying the degree of aversion to inequality. Other contributions in this literature (e.g. Diamond (1998); Saez (2001), among others) put renewed emphasis on the role of the distribution itself. In addition, others have examined the issue of optimal taxation and welfare, in addition to the aforementioned papers; Slemrod & Joel (1990); Mankiw, Weinzerl and Yagan (2009); Poterba & James (1989, 1996) and Feldstein (2008) have analysed this question.

In the extant paper, we actualize several of the aforementioned concepts by examining the impact of the various forms of government on the level of inequality and on the level of social welfare of the poorest segment of society with emphasis on the distribution of ability which is modelled with the maximum entropy method. Blackorby and Donaldson (1978) were among the first to discuss the relationship between inequality and social welfare and Maasoumi (1986) was among the first to examine income inequality in a broader welfare sense, he utilized entropy to analyse multidimensional inequality. Dollar et al. (2014) look at the growth-inequality relationship in the context of social welfare across countries. They find that growth in average income levels does more to raise social welfare than declining inequality. …

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