Welfare vs. Utility

Franz Dietrich ()
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Franz Dietrich: Centre d'Economie de la Sorbonne, Paris School of Economics, CNRS, http://www.franzdietrich.net

Documents de travail du Centre d'Economie de la Sorbonne from Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne

Abstract: Economists routinely measure individual welfare by (von-Neumann-Morgenstern) utility,for instance when analysing welfare intensity, social welfare, or welfare inequality. Is this welfare measure justified? Natural working hypotheses turn out to imply a different measure. It overcomes familiar problems of utility, by faithfully capturing non-ordinal welfare features, such as welfare intensity ?despite still resting on purely ordinal evidence, such as revealed preferences or self-reported welfare comparisons. Social welfare analysis changes when based on this new individual welfare measure rather than utility. For instance, Harsanyi's 'utilitarian theorem' now supports prioritarianism. We compare the standard utility-based versions of utilitarianism and prioritarianism with new versions based on our welfare measure. We show that utility is a hybrid object, determined by two rival influences: welfare, and the attitude to intrinsic risk, i.e., to risk in welfare. A new version of Harsanyi's theorem shows that Harsanyi implicitly makes the questionable assumption that society is neutral to intrinsic risk, even when all individuals are averse to intrinsic risk

Keywords: welfare; utility; risk attitude; social welfare; utilitarianism; Harsanyi-Sen debate; Harsanyi's Theorem (search for similar items in EconPapers)
JEL-codes: D00 D60 D63 D69 D70 D80 (search for similar items in EconPapers)
Date: 2025-01, Revised 2025-11
New Economics Papers: this item is included in nep-hpe and nep-upt
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Persistent link: https://EconPapers.repec.org/RePEc:mse:cesdoc:25003r

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