Friday, May 27, 2022

Interpersonal Utility Comparisons

One common criticism of utilitarianism is that we have no way of way of trading off utility gains to one person against utility losses to another in order to say whether the net change is an increase or decrease in total utility. That is not a problem for much of economic theory, which can be done not only without interpersonal comparisons but without assuming anything more than individual preferences. But it is a problem for the idea of economic efficiency, a criterion of goodness derived from Marshall’s definition of an economic improvement. Marshall, a utilitarian, offered the concept of an economic improvement as corresponding, albeit imperfectly, to a change that increased total utility.

We can and do make interpersonal utility comparisons, although not very well. A parent making decisions that affect his children is implicitly asking himself whether doing something one child wants to do and the other doesn't will increase the former's happiness more than it decreases the latter. Someone deciding which friend to give a gift to is doing it in part on which he thinks will be made happier by it. I signal my feelings, including preferences, in facial expressions, voice tones, and the like; others appear to do the same, giving me some idea of the strength as well as the ordering of their preferences and comparing to mine.

I cannot know another person’s preferences with certainty but I have no serious doubt that the disutility to a random stranger of being tortured to death is greater than the disutility to me of stubbing my toe.

Thursday, May 26, 2022

The Need for Interpersonal Utility in Economics

Alfred Marshall defined the value of an outcome to an individual, positive or negative, as the largest amount he would be willing to pay to get it or prevent it. He defined an economic improvement as a change whose total value was positive, meaning that the value to those who benefited by it was greater than the disvalue to those who lost by it. He offered the concept as an imperfect proxy for a utility increase on the grounds that although a given amount of money might represent more utility for one person than another such differences would usually average out for changes that affected many people. Put in modern terminology, an economic improvement is an increase in economic efficiency and an outcome is efficient if it cannot be improved.

A Pareto improvement, a concept originated by Vilfredo Pareto, is a change that benefits at least one person and harms nobody, avoiding the need for any interpersonal comparison of amount of benefit and harm. An outcome is Pareto efficient if it cannot be improved. The problem with substituting the Pareto versions of improvement and efficient for the ones based on Marshall’s approach is that almost no change affecting a significant number of people is a Pareto improvement, hence almost all outcomes are Pareto efficient.

Hicks and Kaldor tried to solve that problem with the concept of a potential Pareto improvement, a change that would be a Pareto improvement if combined with a suitable set of payments from people who gained to people who lost. If gainers gain more than losers lose, making the change a Marshall improvement, there should be some set of transfers that fully compensates the latter while leaving some gain for the former so, in almost all circumstances, something is a potential Pareto improvement if and only if it is a Marshall improvement.[1] Since the transfers are not actually made, a potential Pareto improvement is not an actual Pareto improvement — some people gain, some lose — so justifying it as a criterion for what changes are good or bad requires the same interpersonal utility comparison as Marshall’s approach.

It just makes the fact less obvious.

In order for economists to conclude that abolishing a tariff or a minimum wage law or practically any other change is (or is not) good for the country, an improvement, they must be willing to bite the bullet, treat utility as interpersonally comparable.

[1] I describe a situation in which something is a Marshall improvement but not a potential Pareto/Hicks-Kaldor improvement in "Does Altruism Produce Efficient Outcomes? Marshall vs Kaldor." Journal of Legal Studies, 1987 Vol. XVII, (January 1988).


Sunday, May 22, 2022

Why Not Sell Single Shoes?

Shoes, in my experience, are always sold in pairs. Should they be?

I can think of at least two arguments against. One is that sometimes one shoe of a pair wears out or gets damaged and you have to throw the whole pair away. This is particularly likely if your feet are not perfect mirror images of each other. Mine are not — my right foot has some lumps on it, apparently normal and non-dangerous sorts of lumps that sometimes occur with aging. The result is that my right shoes wear out faster than my left. Since I have been buying the same shoes from the same seller for years, I now have two pair — possibly a third if I looked harder — plus a number of unpaired left shoes.

That, of course, suggests the other advantage to selling single shoes. When I get new shoes they are comfortable on the left foot, tight on the right. Eventually, after time to stretch, they are loose on the left foot, comfortable on the right. But if I could buy a right shoe one size wider than the left ...