Equity and Efficiency When Needs Differ

Kristoffer Berg, Morten Håvarstein, Paolo Piacquadio and Paolo Giovanni Piacquadio

No 11310, CESifo Working Paper Series from CESifo

Abstract: There is no consensus on how to measure social welfare and inequality when households have different needs. As we show, a dilemma emerges between holding households responsible for their needs or compensating them. This dilemma is of first-order importance for social welfare, but generally plays a minor role in the measurement of inequality. To address this impasse, we introduce partial compensation. Our axiomatic characterizations reveal novel families of welfare criteria and, with the extension to multidimensional commodity spaces, provide ready-to-use criteria for the analysis of redistributive policies.

Keywords: household needs; transfer principles; equity-efficiency trade-off; welfare criteria (search for similar items in EconPapers)
JEL-codes: D30 D63 I31 (search for similar items in EconPapers)
Date: 2024
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