Optimal Policy When Effects on Distribution are Uncertain

James C. Ohls and John E. Kwoka
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James C. Ohls: Princeton University
John E. Kwoka: University of North Carolina at Chapel Hill

Public Finance Review, 1975, vol. 3, issue 2, 123-130

Abstract: The paper addresses the question of whether a government seeking to maximize a social welfare function should undertake a policy when it is known for sure that the efficiency effects of the policy are positive, but when the effects of the policy on the distribution of income are uncertain. The principal conclusion of the paper is that the existence of efficiency gains in such a situation is not, in general, sufficient to guarantee that such a policy is optimal. In particular, the answer to the question posed in the paper is shown to depend, in part, on the degree to which society is risk-loving or risk-averse with regard to uncertain changes in the distribution of income.

Date: 1975
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Persistent link: https://EconPapers.repec.org/RePEc:sae:pubfin:v:3:y:1975:i:2:p:123-130

DOI: 10.1177/109114217500300202

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