A. Pigou's theory of economic welfare

FEDERAL AGENCY FOR EDUCATION

STATE EDUCATIONAL INSTITUTION

HIGHER PROFESSIONAL EDUCATION

"BASHKIR STATE UNIVERSITY"

OIL KASM BRANCH

Department of Economic Theory and Analysis

COURSE WORK

in economic theory

on the topic: “Theory of welfare. Criteria for assessing well-being (V. Pareto, N. Kaldor, J. Hicks, T. Sitovsky, A. Bergson)"

Completed: 1st year student

day department

group No. 14

Record book number 07405

Fatikhova O. D.

Scientific adviser:

assistant

Kolotov D. S.

Neftekamsk – 2008

Introduction 3

1 Views of economists on assessing the well-being of society 5

1.1 Welfare theory and criteria for its assessment -

1.2 Criterion for assessing welfare by V. Pareto 9

1.3 N. Kaldor – R. Hicks criterion for assessing well-being 12

1.4 Criterion for assessing well-being V. Sitovski 14

1.5 A. Bergson’s criterion for assessing well-being 16

2 Factors of social well-being 18

2.1 Gender characteristics of household heads as a factor -

welfare

2.2 Distribution of household heads by type of occupation and level of education as a factor of well-being using the example of the Kirov region 19

2.3 Household consumption level as a factor determining welfare using the example of the Kirov region 23

2.4 Other factors influencing the level of well-being using the example of the Kirov region 27

2.5 Assessment of the well-being of the population of the Kirov region based on a one-time sample survey 29

Conclusion 31

List of sources used 33

Introduction

The purpose of my course work is to reveal the theory of well-being and practically identify the factors that determine the level of well-being.

Objectives of the course work: study and analyze the criteria for assessing the well-being of economists; study the influence of gender characteristics, the distribution of heads of households by type of occupation and level of education, level of consumption and other factors on welfare using the example of a study in the Kirov region and make the necessary calculations; reveal the relevance of this topic today.

Any process occurring in the economy, to one degree or another, constantly faces the problem of inconsistency between the distribution of a limited amount of resources and the corresponding system for their use, so it has not only an economic, but also a social connotation. In the previous years of reforms, preference was given mainly to the transformation of economic institutions, while insufficient attention was paid to the tasks of social development and improving the level and quality of life of citizens. This hampered the country's further progress along the path of socio-economic progress.

As a result, one of the constantly observed phenomena in the modern economy has been an increase in social fatigue and passivity of the population, a decrease in expectations of a prosperous future, and a narrowing of the horizons of economic, personal and family socio-economic planning.

In addition, along with economic and political changes in society, moral criteria, norms, and ideas of all members of society about social inequality have undergone transformation. A large layer of unprotected population has emerged, which has exacerbated social and personal instability, and even greater inequality, manifested in an increase in the proportion of the population with low incomes. The level of well-being is determined not only by income, but also by other indicators characterizing the conditions of the place of residence, the degree of comfort of the living environment, job satisfaction, etc.

In modern conditions, when the main characteristic of a developed society is its social orientation, special attention must be paid to material sources that ensure well-being. One of the sources is, first of all, the income of the population. Therefore, to characterize well-being, it is necessary to study the sources of life support. They most fully reflect the relationship between income and well-being.

Well-being is a multilayered and multidimensional category. It is characterized not only by the level of income, but also by people’s satisfaction with their lives in terms of satisfaction of various needs and interests, depending on various factors that directly influence it. Therefore, first of all, it is necessary to consider and study it taking into account its specific features.

Welfare is not only a characteristic of the development of society, but also an objectively necessary condition for its development. In addition, the growth of well-being can be equated to an increase in wealth, the increase of which is directly related to economic growth, the accumulation of capital and other resources, and therefore the basis for the growth of well-being is material production, which creates material well-being.

In addition, the importance of this topic, I believe, is enhanced by the fact that as market relations and transformations in the socio-economic sphere develop, the economic and social conditions of the regions play an increasingly prominent role.

The theoretical and methodological basis of the study was the works of leading foreign economists - representatives of classical and modern trends in economic theory on issues of well-being, living standards and life support systems.

1 Views of economists on assessing the welfare of society

Welfare theory and criteria for its evaluation

As described in one authoritative publication, welfare economics (WE) is a general term for the normative aspects of economic theory. The basic premises underlying WE are value judgments that the economist is free to either accept or reject. Moreover, in contrast to positive economic theory, where in principle it is possible to empirically test the basic premises, this is impossible to do here. WE deals with policy recommendations and studies ways of transition from one social state A to another - B - which is more preferable. The dominant school is the Pareto school, sometimes called New Welfare Economics. The most significant difference between this school and another associated with the name of Pigou is that it denies the principle of cardinal utility and the idea of interpersonal commensurability of utilities. Since the possibility of comparing the utility or welfare of different individuals is excluded, it is recognized that different pairs of social states cannot be ordered. In order to make more widespread use of the Pareto principle, the compensation principle was put forward. And to determine the optimum of optima, it was proposed to use Bergson's welfare function, which, however, assumes cardinal utility and interpersonal comparability.

This definition gives a general, although not very clear, idea of the theory of welfare and its subject. However, a number of points should be clarified.

Welfare theory is an attempt to discuss normative problems within the framework of the socio-philosophical position on which modern Western economic theory is based, in accordance with the methodological principles adopted by it and with the help of developed analytical tools.

Addressing the problem of comparing different social conditions and the issue of conflicts of interests within the framework of economic theory, which sees its task in analyzing ways of distributing limited resources, means recognizing the social nature of economic activity and, in connection with this, problems that cannot be directly reduced to the problem of efficient resource allocation.

Modern economic theory is based on the principle of the priority of the human person. It follows that if we can talk about a public good, then only as a derivative of an individual good. At the same time, the idea of the public good as qualitatively different from the individual good has taken root in the public consciousness. The entire history of welfare theory is, in essence, the history of attempts to reconcile the ethical principle of consistent individualism with the idea of the public good as irreducible directly to individual benefits.

Based on the principle of individualism, it is easy to declare that an individual good is everything that an individual considers as such, regardless of motives. Then the public good is the totality of individual benefits. However, the problem arises of how this set is constructed, i.e. what are the rules for “adding” individual goods.

There are other obstacles to simply relating the two types of goods. Thus, when defining a good, we leave out of sight the question of how to achieve it, thereby believing that both phenomena are independent. Although such an assumption at first glance seems quite natural, in reality it is not so. The division of the question of the essence of good and the ways to achieve it is natural for utilitarianism, which asserted, as philosophers usually say, the primacy of the concept of good in relation to the concept of correctness, i.e. what needs to be done to achieve good. At the same time, other philosophical systems are possible in which the concept of good is inseparable from the idea of how it is achieved. And it should be noted that socio-economic practice often testifies in favor of this approach.

Since the economic theory of welfare in general and the theory of welfare in particular was strongly influenced by utilitarianism, this problem was practically not raised in it. Moreover, it was utilitarianism that prepared the ground for the formulation of the social welfare function, which ultimately presupposed the subordination of individual target functions to some external goal.

If we count the modern economic theory of welfare from the work of Pareto, then we can say that over 100 years this theory has received mostly negative results. For a large number of specific problems, it has been shown that there are no general rules that allow one to reduce individual ideas about the good to a certain common good. At the same time, not only because a negative result is also a result, but also because “failures” at a high level of abstraction were compensated for by fruitful consideration of particular issues, new directions of economic analysis arose from failures in solving the problem of well-being.

As in a number of other cases, the origins of many problems in welfare theory can be found in A. Smith. In The Wealth of Nations, Smith formulated three principles that are most directly related to this problem: the main motive of a person in the field of economics is selfish interest; The “invisible hand” of the market transforms private interest into the common good, which is interpreted, first of all, as the wealth of the people. The best policy, from the point of view of ensuring the growth of the wealth of the people, is the one that has the least impact on the free play of market forces.

It is easy to see that this contains the answer to the question posed above about the common good. For Smith it is national wealth or income; An individual good is an individual income. For Smith, there is not and cannot be a contradiction between them, and, very importantly, the free market best ensures the coordination of interests and the achievement of both individual and public good.

From here follows Smith's third thesis - a political imperative directly directed against mercantilism and which became the slogan of the defenders of laissez-faire and remains so. The basic idea is that the best way to provide society with goods is achieved through the market mechanism with minimal government participation. Therefore, if we need to strive for something, it is to bring reality closer to the free market.

Welfare theory is mainly centered around the following range of issues:

· the relationship between the common good and the results of the activities of individuals pursuing their own goals and the influence of the institutional structure of the economic system on this process. In other words, the question of which system structure provides the best balance between private interests and the public good is being discussed: a free market, a market with elements of regulation, a centralized mechanism for decision-making and management.

Any state of the economy is characterized by a certain allocation of resources and distribution of the results of economic activity. Accordingly, the state of the economy can be compared in terms of the efficiency of resource allocation and the fairness of the distribution of products obtained from the use of these resources.

Society, as a result of this or that policy, can change these states. In this case, it is necessary to determine which of the possible economic states is more preferable from the point of view of society.

Based on his own value system, any person distinguishes between fair and unfair and formulates a certain ideal of justice. However, it is very difficult to unambiguously determine the criterion of justice even in relation to an individual human life, not to mention the entire economy as a whole.

1.2 V. Pareto’s criterion for assessing well-being

In modern welfare theory, two fundamental approaches to resolving the issue of the essence of public goods can be distinguished. According to the first, a public good is characterized by a certain indicator, or target function, which is subject to optimization. According to the second, this is a state that is in some sense the best from the point of view of the individual.

The second approach is associated with the name of V. Pareto and, above all, with his work “Course of Political Economy” (1896-1897). Arguing in line with the theory of general equilibrium, Pareto tried to give a meaningful interpretation to the statement that perfect competition ensures the achievement of maximum welfare. At the same time, he emphasized the ethical neutrality of his approach and limited himself to analyzing the problem of efficiency; refused to consider the nature of utility and recognized the impossibility of measuring utility and interpersonal comparison of utilities; considered the scale of preferences to be the only possible way to identify individual utilities; proceeded from the premise that no one except the person himself is capable of judging what is good for him; the question of the nature of people’s preferences went beyond the scope of economic theory.

The consequence of such ideas was the assertion that pure economic theory cannot provide a criterion for choosing between a social order based on private property and socialism. The solution to this question involves turning to circumstances of a different nature, in which Pareto himself was actively interested, but not as an economist, but as a sociologist and philosopher.

The Pareto optimality criterion is most often used in microeconomic theory. We say that the state of a system is Pareto-optimal (or Pareto-efficient) if there is no other state from which every single participant in the interaction would be better off. That is, in the case of a Pareto-efficient state, it is impossible to improve the well-being of some agents without worsening the situation of others. Accordingly, a Pareto improvement is a change in state in which the welfare of all agents increases. It is quite possible that this criterion became widespread due to a fact called the first theorem of social welfare. It states that in a state of general equilibrium the allocation of resources is Pareto optimal.

The Pareto criterion is based on the representation of social welfare as a vector of individual well-being:

W = (W1, W2 … Wn) (1)

where Wi is the welfare of the i-th individual (1≥ i≥ n), n is the number of members of society.

An obvious problem lies in the choice of approaches to assessing the well-being of individuals. In the most general form, an individual’s well-being can be defined as a subjective assessment of his situation, and this assessment can be given by various members of society, including the individual himself, as well as by government or public organizations. If we assume that each individual is the best judge of his own welfare and strives to maximize this welfare, we can use the individual's utility function as an ordinal indicator of his welfare. Let us assume that the imaginary economy consists of only two individuals: Fedor and Tryphon. If we plot Fedor’s well-being along the horizontal axis, and Tryphon’s along the vertical axis, then we can construct a line of “boundaries of limited opportunities.”

Figure 1 – Possible configuration of the boundary of possible welfare

This assumption is quite simple: if, for example, an individual prefers state A to B (Figure 1), it is argued that he is better off in situation A than in B, and therefore in his system of preferences A is ranked relatively higher than B. Then we get vector: W = (U1, U2 … Un) (2)

where Ui is the ordinal utility function of the i-th individual, reflecting his ordinal preferences. In general, an individual's preferences may relate not only to his own consumption, but also to what is happening in society.

By definition, one vector is greater than another if and only if at least one of its elements is greater, and all others are not less than that of the other vector. Comparing Pareto levels of well-being comes down to comparing vectors. It follows that welfare increases with the increase in the utility received by an individual, if the utility of all other members of society at least does not decrease. However, we cannot say anything definite about the change in social welfare if the utility of some members of society increases and others decrease.

According to V. Pareto, any change in the economy that does not cause losses to anyone, but increases the well-being of one or more individuals, is an improvement. Consequently, Pareto optimal is a state of the economy in which it is impossible to improve the position of at least one subject without worsening the position of others.

1.3 N. Kaldor – R. Hicks criterion for assessing well-being

To explain the situation of movement from point A to point E (Figure 1), N. Kaldor and R. Hicks proposed the following procedure. Suppose we ask Tryphon what the maximum amount he would pay in order not to give up moving from point A to point E. Suppose that this amount is Wt. Similarly, you can find out from Fedor how much he is willing to pay to prevent such a change from occurring. Let us denote this sum by Wф. If Wf exceeds Wt, Kaldor argues that Tryphon can compensate Fedor for the decrease in his well-being and at the same time keep part of the winnings for himself. So, the change is ultimately a net profit (in monetary terms), since Tryphon's profit exceeds Fedor's losses. Note that according to Kaldor-Hicks, Fedor's losses are not required to be compensated in such a way that no one would be a loser: the individual receiving the profit must be able to potentially make such compensation at his own expense.

Let us illustrate the Kaldor-Hicks criterion graphically (Figure 2). Let us introduce a new curve of utility possibilities ZZ", characterizing all possible combinations of utility levels of individuals when the conditions of Pareto optimality are met.

Figure 2 – Kaldor–Hicks optimality criterion

Let's consider the movement from point F. Let's see what happens if Fedor cedes some part of his wealth, transferring it to Tryphon. We will find ourselves at point G. At this point, Fedor’s position is worse, and Tryphon’s position is better than at point F. Moving further, we will find ourselves at point E, etc. This means that ZZ" is the locus of points of all combinations of utility levels for two individuals that can be obtained through the redistribution of wealth between them and where this redistribution is not accompanied by any other changes.

Consider the movement from point A to point E. This movement cannot be assessed using the Pareto criterion. ZZ" is a utility opportunity curve passing through point E. Note that there are other points (for example, F and G) to which one can move from E by redistributing wealth. These points lie above point A. According to the Kaldor-Hicks criterion, the movement from point A to point E is an improvement, since at point E it is possible to redistribute wealth in such a way that no one will suffer losses as a result of the change (It is clear that the loss that Fedor suffers is compensated at point G and especially at point F). In summary, we note that movement from point A to point E is an improvement if A lies below the possible utility curve passing through point E.

The Kaldor-Hicks conclusion: a change in economic policy leads to improvement if those who gain value their gains above the amount that losers attribute to their losses.

1.4 Criterion for assessing well-being T. Sitovsky

American economist T. Sitovsky noted that the criterion proposed by Kaldor-Hicks has serious shortcomings. By this criterion, it is possible that movement from point A to point H (Figure 3) means that an improvement is possible, but at the same time, movement from H to A will also be an improvement. Point A lies below the possible utility curve ZZ", which passes through point H, but at the same time H lies below the possible utility curve JJ", passing through point A. (This situation arises when two utility opportunity curves intersect.)

Figure 3 – Optimality criterion by T. Sitovsky

In order to resolve this problem, Sitovsky proposed the following criterion:

a) use the Kaldor-Hicks test to determine whether moving from the original point to a new point improves the position of one of the individuals;

b) use the Kaldor-Hicks test to ensure that moving back from the new point to the original point will not make the situation worse.

According to Sitowski's criterion, if and only if movement from one point to another satisfies both statements, it will lead to improvement.

However, as in the case of the Kaldor-Hicks criterion, and in the case of the Sitovsky criterion, it is assumed that a transition is being made from comparing the welfare of individual individuals to a monetary assessment of the welfare of these individuals.

Note that if utility opportunity curves never intersect, the following problem may arise. At point J (Figure 4) Fedor’s position is better, and Tryphon’s position is worse than at point A.

Figure 4 – Optimality criterion

If, according to the Kaldor-Hicks and Sitovsky criterion, the position at point J is better than at point A, since the utility opportunity curve passing through J lies above A, then there is no clear reason for such a conclusion.

The desire to bring utilities of different quality to a single monetary base is limited. The marginal value of the same amount is different for the poor and the rich. Is a thousand dollars a lot for a student? And for a person whose monthly income is twenty thousand dollars? And for a billionaire? The problem of developing a value system remains acute.

Thus, T. Sitovsky proposes a double criterion: firstly, make sure that the movement from the first point (on one consumer opportunity curve) to the second (on the other consumption opportunity curve) improves the situation, and secondly, check that the reverse movement from the second point to the first does not worsen the situation.

1.5 A. Bergson’s criterion for assessing well-being

Bergson, in contrast to Kaldor, Hicks and Sitovsky, believes that the basis for inferences regarding the improvement or deterioration of well-being should be the identification of clear value judgments made by individuals themselves. It is these judgments that will enable the economist to assess the situation. According to Bergson, judgments establishing what is fair and good in distribution can be developed by economists, voters, legislatures, or other government agencies. This approach is equivalent to constructing an indifference map that estimates the different combinations of utilities that can accrue to different members of society (dashed lines in Figure 5).

Such an indifference map is called a total welfare function, similar in its properties to the ordinal utility function. It allows the economist to make a definite decision - whether the proposed change in economic policy is an improvement in the situation or not. Based on this approach, position E in Figure 5 should be considered better than position A (the change from A to E is an improvement), since E lies on a higher indifference curve of this social welfare function.

Figure 5 – Social welfare function

Thus, A. Bergson considered the problem of developing a value system. Such a system should be developed by economists, legislative and executive bodies. Creating such a system means constructing a map of indifference curves that would reflect the social welfare function.

2 Factors of social well-being

In March 2006, Kirovstat conducted a regional one-time sample survey “Assessment of the well-being of the population of the Kirov region”. This work was a continuation of the analytical material “Problems of Poverty in the Kirov Region” prepared in 2005 by order of the Government of the Kirov Region. The purpose of the survey is to obtain information on the standard of living of the low-income (poor) population of the region, which will complement the data of federal statistical observations on surveys of household budgets and on employment problems.

To conduct this survey, Kirovstat specialists developed a questionnaire consisting of 33 questions grouped into 6 sections:

a) information about the household;

b) information about the head of the household;

c) household income;

d) household expenses and savings;

e) living conditions;

f) factors affecting the standard of living.

The survey covered 626 households living in urban (72%) and rural (28%) areas. The ratio of households surveyed in the city and in the countryside corresponded to the distribution of the population of the Kirov region by place of residence as of January 1, 2006. The survey was conducted by experienced interviewers. The questionnaire was answered mainly by heads of households, and in their absence, by the most knowledgeable members of the household who were at least 18 years old. Among the household heads surveyed, there were 265 men and 361 women.

2.1 Gender characteristics of household heads as a factor of well-being using the example of the Kirov region

The level of household well-being is influenced by gender differences between heads of households and their age. Moreover, as the survey showed, a household benefits most in terms of welfare if it is headed by a man: more than half of the heads of non-poor households in the Kirov region are men. In low-income households, only a third (33.1%) are male heads, and in extremely poor households the figure is just over a quarter (25.3%). The age of the household head also matters for wealth, but probably not as significantly. The average age of a man - the head of a non-poor household in March 2006 was 46 years, a woman - 51 years; low-income – 44 and 49 years old; extremely poor - 36 and 41 years old.

2.2 Distribution of household heads by type of occupation and level of education as a factor of well-being using the example of the Kirov region

It is important to note the positive impact of the level of education and qualifications of household heads, which are the second most important positive fact after their gender characteristics. Heads of non-poor households surveyed have a higher level of education: almost a quarter of them (24%) received higher education, while out of every 100 heads of low-income households, only nine had higher education. The share of heads of households whose level of education is not higher than the general average is higher in the group of low-income households than in the group of non-poor ones. At the same time, the share of heads of households with secondary and primary vocational education is almost the same in both groups (secondary vocational – 27 and 30%, primary vocational – 16 and 19%, respectively). Most heads of households in both groups are employed, meaning their wages are set by their employer.

An important factor in household well-being is the type of activity of the employed head of the household. The results of the sample survey confirmed, for example, that heads of households working in industry reduce the risk of poverty in their families. Industrial production employs a third of the heads of non-poor households and 19% of the poor. Agriculture, where the lowest wages are recorded, employs 26.7% of heads of low-income households and only 5.6% of heads of non-poor households.

Table 1 – Distribution of heads of households by type of occupation (% of respondents in the group)

	Out of him
	Employed people	Entrepreneurs	Running a household
Non-poor households	100	69,3	3,9	0,3	1,2	25,3
Without children	100	62,7	1,7	-	0,8	34,7
	100	85,0	9,0	1,0	2,0	3,0
one	100	87,1	9,4	-	1,2	2,4
two	100	69,2	7,7	7,7	7,7	7,7
three or more	100	100,0	-	-	-	-
Poor households	100	62,1	0,7	2,8	2,8	31,7
Without children	100	41,5	0,7	-	0,7	57,1
People with children under 16 years of age:	100	83,2	0,7	5,6	4,9	5,6
one	100	85,1	-	3,4	5,7	5,7
two	100	82,0	2,0	10,0	4,0	2,0
three or more	100	66,7	-	-	-	33,3

During the survey, heads of households were asked to answer the question: “Does the job correspond to your specialty?” The answers were distributed as follows: 25.5% of heads of low-income households answered “corresponds”, 30% - “does not correspond”; responses from heads of non-poor households – 41.7 and 20.8%, respectively. The heads of low-income households who did not work in their specialty, for the most part, had a basic education no higher than secondary vocational education.

Only 7 out of every 100 heads of low-income households had higher education. In contrast to low-income households, among non-poor households almost every fourth head had a higher professional education.

Table 2 – Distribution of heads of households working outside their specialty, by level of education (percentage)

Those who answered the question in the negative were asked to indicate the reason for the discrepancy between the work and the acquired specialty. Difficulties in finding a job in their specialty were reported by 63.2% of heads of low-income households and 38.6% of non-poor households. This indicates, on the one hand, that there are disproportions between the supply of personnel trained by vocational education institutions and the needs of the economy, and on the other, a serious imbalance in the labor market that arose during the transformation of the economy in the 90s of the 20th century and overcoming so far, and also that not everyone could adapt to the new conditions.

Wages received from the main job are one of the leading sources of livelihood for all groups of households.

At the same time, almost two-thirds (61%) of low-income households, in addition to wages and pensions, received income from personal subsidiary plots, 20.3% had help from parents (children), other relatives and friends, 7.2% - casual earnings, 5.9% - wages from additional work, and another 23.8% of low-income people noted that they had other sources of income. In rural areas, along with earnings from their main job, respondents named from personal subsidiary plots.

Table 3 – Grouping of respondents by the presence of individual sources of income (as a percentage of respondents in the group)

Non-poor households	Poor households	Including
Non-poor households	Poor households	city	village
Salary from main job	77,4	70,7	66,0	75,9
Salary from additional work	9,8	5,9	5,2	6,6
Business income	3,9	-	-	-
Income from personal farming	58,0	61,4	47,7	76,6
Scholarships	3,0	3,8	5,9	1,5
Pension	55,1	45,2	53,6	35,8
Help from parents/relatives	12,5	20,3	17,0	24,1
Child support	0,9	2,8	2,6	2,9
Unemployment benefit	1,2	3,4	3,3	3,6
Income from all types of property	1,2	-	-	-
Random (one-time) earnings	4,2	7,2	7,2	7,3
Saving	3,9	1,0	0,7	1,5
Other	8,6	23,8	22,9	24,8

Every seventh head of a low-income household and every ninth head of a non-poor household had additional work or occasional (one-time) extra work. As additional work, heads of households named part-time work, selling personal farm products, crafts, fishing, hunting, and providing services to private individuals.

The loss of the head of household's job increases the likelihood of the household falling into poverty. Most households do not have the ability to save. Only 19.3% of poor and 42.3% of non-poor households reported having savings. The risk of losing a job was named by 23.3% of respondents as one of the factors of poverty in the region.

Respondents associate this factor with the negative effect of two other factors: lack of jobs (35.5%) and rising unemployment (23.2%). According to the sample survey, the share of unemployed heads of low-income households was more than twice the proportion of them in non-poor households.

The retirement of one of the household members also means a sharp drop in income, since the amount of the pension is significantly lower than the amount of wages. Almost a quarter (24.1%) of pensioners receiving labor pensions in 2005, according to the Pension Fund, were below the subsistence level. At the same time, the ratio of the average size of labor pensions to the cost of living of a pensioner in 2005 was only 1.25. Accordingly, the presence of pensioners in a household or the retirement of its head has a negative impact on the level of well-being. Among low-income households, pensioners account for almost a third (31.7%), in non-poor households - a quarter (25.3%).

2.3 Household consumption level as a factor determining welfare using the example of the Kirov region

The survey allowed us to assess the level of consumption of poor and non-poor households. According to its results, more than a third (35.5%) of low-income households rated their nutrition level as poor, while among non-poor families only one out of every seven respondents (14%) gave the same answer. Three-quarters of low-income households and 44% of non-poor households lacked funds to renew their clothes and shoes. Almost half of the surveyed low-income families update outer clothing and seasonal shoes as they wear out; approximately half of low-income households with children are not able to buy new clothes and shoes for their children as they grow.

Limited funds hinder the process of capital accumulation. Among low-income households, out of every five survey participants, only one had savings, and among non-poor households, almost every second one had savings.

The answers of respondents with different levels of well-being to questions related to assessing the quality of nutrition could be somewhat subjective.

The questionnaire contained detailed questions to compare a household's level of consumption with its level of well-being. More than three quarters (78.3%) of low-income households indicated a lack of fruits and berries in their diet, more than half - meat and meat products, almost half - fish and fish products. At the same time, the consumption of fruits and berries was considered sufficient by less than a quarter of low-income households, meat and meat products by 42%, and fish and fish products by slightly more than half of households.

According to the survey, among low-income households, only one out of every five households (22.4%) can afford meals with meat, chicken or fish every day; among non-poor households - every second. Low-income households consume dishes with meat, chicken or fish mainly 2-3 times, or even once a week. As for fruits and juices in winter, the majority of low-income households consume them extremely rarely in their diet, and only 2% do so daily.

The sample survey once again confirmed that not all low-income households have color televisions, refrigerators (freezers), vacuum cleaners, washing and sewing machines, not to mention more modern types of equipment: video recorders (video players), stereo systems, cell phones. Only 16% of the surveyed low-income households had cars, 14% had motorcycles, and 6% had personal computers. It should be noted that a significant part of durable goods available in households was purchased 15-25 years ago. First of all, these are furniture, refrigerators, washing and sewing machines.

Rising prices for services reduce the purchasing power of the income of the poor. The household survey made it possible to determine the extent to which households of different financial status can consume services. As the respondents' answers showed, among low-income households, 32.8% of respondents can afford the necessary paid medical services, education services - 6.9%, residential repair services - 17.2%, long-distance passenger transport services - 10.3%, sanatorium - health services – 3.4%.

Table 4 – Opportunities for consuming paid services depending on the level of household well-being (as a percentage of the group total)

Constraints on the level of consumption of low-income households lead to the refusal of certain types of services. Thus, in low-income households the level of consumption of cultural services is very low. As the survey data showed, less than a quarter of these households can purchase cinema (theater, concert) tickets; among the extremely poor - only 16.5%.

The survey also showed that low-income households have virtually no new housing that meets modern requirements.

A significant proportion of these households (43%) live in wooden houses, almost a third (31%) of which were built before 1965, two thirds (67%) - between 1966 and 1995, and only 2% of houses were built after 1995. Less than 40% of low-income households live in panel and block houses, mostly built between 1976 and 1996.

The degree of improvement of housing of low-income households for certain types of improvement is lower than in non-poor households. On average, for low-income and non-poor households, the level of provision with types of amenities at the time of the survey was: running water - 87.9 and 92%, heating 59.3 and 85.7%, sewerage - 61.4 and 86.3%, hot water supply - 28 ,3 and 65.8%, bath (shower) - 48.6 and 82.4%, gas or electric stove - 86.9 and 97.3%, telephone - 46.9 and 82.4%.

Households, in addition to their main housing, have other types of real estate, mainly land plots and country houses for seasonal living, garages. As the respondents' answers showed, among the poor, every fourth household had a plot of land (without residential buildings), every sixth had a dacha (house) for seasonal residence and a garage. It should be noted that the ownership of such real estate is retained by households to a greater extent in order to survive (self-sufficiency in food and consumption of services for living in their own homes). Only 1.4 and 3.8% of low-income households, respectively, had additional housing in the form of an apartment or an individual house (parts of a house with a separate entrance). For comparison: among non-poor households, 3.9% of households had an additional apartment, 3.6% had an individual house (or part of it), almost every third household had a permanent garage, and every second had a dacha (house) for seasonal residence.

In order to be able to plan something to improve their living conditions, at least some savings are necessary, without which solving this issue for a significant part of low-income households becomes impossible. Only one out of every 20 (5.4%) low-income households with savings found the opportunity to set aside some funds for the purchase (purchase) of an apartment, and the rest set them aside to resolve more urgent and necessary issues (in descending order of importance) : to create a reserve for an emergency (51.8%), for apartment renovation (21.4%), for retirement, for old age (19.6%), for buying a car (19.6%), for help children (16.1%).

In non-poor households, there are several primary purposes for using savings: buying a car (49.3%), reserve for an emergency (35.9%), renovating an apartment (26.1%), buying a dacha, land (23.9%) , purchase of expensive things (clothing, household items) (22.5%).

Savings for retirement or old age in non-poor households are only 8.5%.

In general, it can be stated that the low-income population, having an increased share of food costs, spending a significant part of the funds on purchasing essential manufactured goods, has limited opportunities for purchasing durable manufactured goods and services, as well as for accumulating and improving housing conditions.

In the Kirov region, in order to maintain an acceptable standard of living for a family, at least two members must have a permanent source of income. Therefore, for many families, the loss of work by at least one of the breadwinners means moving below the poverty line. The majority of the population does not have real savings that could allow them to survive long-term unemployment, much less open their own business. The risk of a household moving from the “non-poor” group to the “poor” group increases if any of the able-bodied members of the household or its head becomes unemployed.

2.4 Other factors influencing the level of well-being using the example of the Kirov region

In the final section of the questionnaire, respondents were asked to indicate factors influencing the standard of living: factors that increase poverty and factors that are most important for achieving material well-being. Among the reasons that increase poverty, according to respondents, the following dominate: rising prices (93.9%), low wages (90.9%), high cost of medical services (38.3%), lack of jobs (35.5 %), high cost of payment for education services (30.5%).

Every fourth respondent cited increased unemployment and job loss as poverty factors, and every seventh or eighth indicated delays in the payment of earnings. In addition, low pensions and rising tariffs for housing and communal services were mentioned.

According to respondents, the level of poverty largely depends on the combined effect of rising prices, low wages, imbalances in the labor market and other factors. During the sample survey, respondents were asked to name the four most important, in their opinion, factors that increase poverty. The most common combinations of answers were:

1. Rising prices, low wages, lack of jobs, high cost of medical services;

2. Rising prices, rising unemployment, low wages, high payment for education;

3. Rising prices, low wages, lack of jobs, high fees for education;

4. Rising prices, low wages, lack of jobs, job loss.

5. Rising prices, low wages, lack of opportunity to improve living conditions, high cost of medical services.

The first two places in the ranking of the factors most important for achieving material well-being, according to respondents, are occupied by good work and education, the third and fourth places are occupied by the position held, connections and acquaintances. Further, in some isolation, the following are named: hard work, personal physical data (health, attractiveness, gender, etc.), personal social qualities (ambition, desire for achievement, moral qualities, etc.), place of residence. Less than 18% of respondents consider the most important factors such as chance or luck (8.3%), willingness to break the law (5.3%) and the opportunity to do business (4.3%).

2.5 Assessment of the well-being of the population of the Kirov region based on a one-time sample survey

To assess the level of financial situation of households, the indicator “cash income” was used. The average per capita living wage for a resident of the Kirov region in the first quarter of 2006 was at the level of 3,019 rubles per month. Based on the level of total monthly income of households and the number of cash members of households, the average per capita income of the surveyed households was calculated and their two groups by level of well-being were determined:

· non-poor with an average per capita income above the subsistence level – 336 households (53.7%);

· low-income (poor) – with income below the subsistence level – 290 households (46.3%).

Among the low-income households, 91 extremely poor households were surveyed - with an average per capita income below ½ the subsistence level.

Of the total number of available members of all surveyed households, 53.4% were employed, 27.1% were dependents (20% were children). Moreover, as this survey once again confirmed, the presence and number of children and their ratio to the number of working household members have a very significant impact on the level of household well-being: with an increase in the number of children and a decrease in the number of workers, the level of household well-being decreases. In low-income households, the share of workers was noticeably lower, and the share of children was higher than in non-poor households. The share in these groups was respectively: working household members - 46.3 and 60%; dependents - 35.2 and 19.1%, of which children - 26.2 and 14%.

The presence of children under 16 years of age was noted in every second low-income household and only in one of three non-poor households.

Summarizing the results obtained, we can conclude that a household in the Kirov region has lower welfare and is likely to have a higher risk of being among the poor if any combination of the following conditions is met:

· the head of the household is unemployed or female;

· there are children in the household, especially small ones, and pensioners;

· the household lives outside the regional center or industrialized cities of regional significance.

Conclusion

The economy is characterized, first of all, by two main parameters: the allocation of resources that determine the results of economic activity and the distribution of the results of economic activity.

Thus, the economic well-being of society can be assessed from two positions: the efficiency of resource allocation and the fairness of distribution of benefits.

A review of numerous Western publications on this topic shows that they focus on the problem of reconciling the ethical principle of consistent individualism with the idea of the public good as not reducible to individual benefits. In most cases, we are talking about finding a way to correlate the individual and social benefits.

According to A. Smith, public good is national wealth or total income, individual good is individual wealth or private income. According to A. Smith, there is not and cannot be a contradiction between them, since the free market best ensures the coordination of interests and achievements of both individual and public good. The “invisible hand” of the market transforms private interest into the common good, which is interpreted as the wealth of the people.

For A. Pigou, the indicator of well-being is national income, dividend or national income. By this, he confirms his commitment to the ordinalist point of view and actually creates the preconditions for the emergence of a new approach - the “social welfare function”.

Achieving optimal well-being, according to Pigou, is possible only with state intervention in the economy, since the automatic achievement of the optimum is hampered by the imperfections of the free market (monopoly and so on).

According to W. Pareto's welfare criterion, an increase in welfare means a situation where some people win, but no one loses. In other words, a state is called optimal if the following condition is satisfied: no one's welfare can be improved by deteriorating the welfare of anyone else. The main disadvantage of the Pareto optimum is the complexity of its practical application, since in real life there is no free competition and competitive equilibrium.

R. Hicks and N. Kaldor proposed so-called compensation criteria to solve the problem of comparing optimal states. The essence of their proposal is that a transition from one state to another, in which some win and some lose, can be considered an improvement if the winners are able (but do not necessarily do so) to compensate the losers for their losses and in doing so they remain the winner.

A. Bergson introduced the concept of a social welfare function, which defines a system of social indifference curves, with the help of which it was proposed to rank combinations of individual utilities. This assumption means recognizing the existence of ethical rules for achieving a broader optimum than the Pareto optimum assumes. For example, a social function increases if its components increase or some increase while others do not decrease.

An analysis of Western theories of well-being shows that the principle of the priority of the human person prevails in them, in almost all of them the nature of well-being is revealed from the standpoint of individual and social well-being, and the main condition for increasing well-being is government intervention in the economy due to market imperfections. They are characterized by an expanded interpretation of well-being, but at the same time it does not reveal the specific content of its essence by defining the properties, boundaries, elements and structure of well-being.

List of sources used

1. Agapova I. History of economic teachings. Tutorial

2. Blaug M. Economic thought in retrospect. – M. – Delo Ltd. – 1994

3. Milestones of economic thought. T. 4. Economics of Welfare and Public Choice / Edited by Zaostrovtsev A.P. //Economic School - 2004

4. Ludwig Erhard / Welfare for all – 1985

5. Modern economy. Lecture course. Multi-level tutorial. – Rostov-on-Don: Phoenix Publishing House, 2001 – 544 p.

6. Economic theory of welfare. Textbook for universities. / Tarasova S.V. // UNITY – 2001

7. History of economic thought. Lecture course. – M.: Association of Authors and Publishers “TANDEM”. EKMOS Publishing House, 1998 – 248 p.

8. Principles of macroeconomics. 2nd edition / Translation from English - St. Petersburg: Peter, 2005. - 560 p.

9. Economics: Textbook for technical universities / A. I. Mikhailushkin, P. D. Shimko. – 3rd edition, rev. – M., Higher School, 2006 – 488 p.

10. Akopov V., Gadzhiev Yu. National and regional models of welfare // Society and Economics - 2002. - No. 6

11. N. I. Zorin, R. M. Kudryavtseva / Welfare of the Kirov region according to 2006 data - http:// www.kks.kirov.ru/pressw/publ/vopros3.htm

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Course work

by discipline " Microeconomics"

Student Ivanov Ivan Ivanovich

Introduction

1. History of the development of welfare theory

2. Views of economists on assessing the well-being of society

3. Economic theory of welfare A. Pigou

4. Factors that determine the welfare of society

5. Modern welfare theory

List of used literature

Introduction

The purpose of my course work is to reveal the theory of well-being and practically identify the factors that determine the level of well-being.

Objectives of the course work: study and analyze the criteria for assessing the well-being of economists; study the influence of gender characteristics, distribution of household heads by type of occupation and level of education, level of consumption and other factors.

Humanity, like the individual, has always strived to achieve well-being. Welfare (or prosperity) is a happy, successful, desirable, successful time or life of an individual, when peace, peace and prosperity reign. This is how the concept is explained in Dahl's dictionary.

In the ideas of early utopian socialism, the destruction of private property, egalitarian distribution, distribution in society. According to representatives of this doctrine, a person experiences inconvenience because one of their closest contacts lives better. And in order to avoid this, there must be general regulations in society and everyone must be equal. We will further consider well-being as a synonym for happiness and complete satisfaction. This idea was expressed in particularly clear form by T. Campanella, an Italian Dominican monk and a Frenchman, Morelli. However, it should be said that achieving an even distribution of people in society, which presupposes their complete absence of any property, destroys not only envy, but also the mechanism of social comparison, which is fundamental for the development of both the economy and other aspects of social life .

The ideologists of capitalist production, with their philosophy of selfishness and individualism in the theory of welfare, placed an emphasis on production, considering welfare, where wealth was understood as the products of material production. Within these ideas, the basis and source of well-being is the accumulation of national capital, and the indicator of the level of well-being is the growth in the amount of goods per capita or the net income of the nation, which functionally depends on the resources of capital, land and labor. Consequently, the factors of economic growth, the most important of which were the accumulation of capital and the division of labor, automatically became factors in the growth of well-being.

In the current economic situation in Russia, when the crisis has broken out and at the same time when Russia is striving to join the WTO, welfare is important for the population. The incomes of different groups of the population vary greatly, and this inevitably leads to discontent in the country. In this regard, the topic of this test is very relevant at the moment, since in order to understand how to reduce the level of these discontent and improve the well-being of the needy population, you need to go to the roots, i.e. welfare theories. When discussing problems of economics and sociology, the concept of poverty is not at all necessary for studying this topic, the concept of welfare is very often used. The well-being of an individual is different from the well-being of the whole society, so they should be considered separately.

1. History of developmentAndtheorywelfare

Welfare theory is associated with the study of methods of economic organization that provide society with the maximization of wealth or, as modern science says, economic well-being. The subject of this section of economic science can also be defined as a comparison of different states of the economy. Since welfare economics largely consists of value judgments whose truth cannot be verified by empirical methods, it is usually classified as a normative area of economics.

The main problem in this area is the definition of social welfare. By what criteria can we judge the welfare of society and who should make decisions that affect public welfare?

The most famous is I. Bentham’s criterion, according to which welfare is determined by the happiness of the greatest number of people, i.e., by summing up the satisfactions of members of society and maximizing this sum, we will obtain the greatest welfare. In connection with the use of this criterion, problems of both a subjective and objective nature arise. The first group of problems includes the fact that different people evaluate the same phenomena of life differently: what is good for one is bad for another. The objective problem is the difference in the position of different members of society under the same economic conditions. Accordingly, any change affects different people differently. Due to these considerations, the question is raised: who should decide issues affecting the welfare of society: the dictator, the majority of members of society, or that part of it whose intensity of preferences is greatest? Answering these questions requires addressing a key problem for this field of research, namely, interpersonal comparisons of utility and individual preferences. “Because utility is a subjectively experienced satisfaction, economists gradually recognized that the question of interpersonal comparison of utility is, in fact, an insoluble problem. For the same reason, the aggregation of individual preferences becomes impossible.”

Economists had to look for ways to develop welfare theory based on softer assumptions. The new approach was developed by the Italian-Swiss economist V. Pareto, who formulated a criterion that required less information from the researcher. The Pareto welfare criterion states: “the optimal state of the economy is one in which it is impossible to improve some members of society without worsening the situation of others. Accordingly, any change in economic conditions that creates benefits for any group of individuals and does not harm anyone increases social welfare.” This approach does not require measurement or interpersonal comparison of utility, but its weakness is the limited scope of its possible application. In real life, almost any change in conditions creates benefits for some and harm for others. How can such changes be assessed in terms of their impact on social welfare? The Pareto criterion does not answer this question and, therefore, does not allow different economic situations to be completely ordered by preference.

The existence of such theoretical problems has led to the emergence of a more complex approach. In particular, N. Kaldor and J. R. Hicks proposed the principle of compensation, according to which “a change in economic conditions increases social welfare if the individuals who received the gain as a result are able to compensate for the damage to those who suffered it and, anyway , stay a winner." This approach, like the Pareto criterion, avoids the need for interpersonal comparison of utility, and, at the same time, is applicable to a wider class of economic states. The criterion itself does not imply actual compensation. In this case, the very possibility of such compensation is considered as a sufficient condition for any economic change to be considered as increasing the welfare of society. Because “the increase in the utility of some exceeds the damage of others, which means that the total social utility has increased” - this is the main meaning of this criterion. What is important here is the existence in principle of the possibility of such a redistribution of income in which the initial change in economic conditions will lead to a Pareto improvement. However, this criterion is also not free from shortcomings. In connection with this criterion, it is customary to distinguish two problems, namely the problem of reversibility and the problem of intransitivity. “The problem of reversibility arises when a change in economic conditions is such that both in the transition from the initial state to the final state, and in the transition back from the final state to the original one, it is possible to indicate the possibility of a non-distorting redistribution of income in which the change will lead to a Pareto improvement.” Simply put, we can specify a pair of different economic states, of which the first is a Pareto improvement over the second, and the second is a Pareto improvement over the first. “This problem is referred to as the problem of reversibility or the “Scitovsky paradox.” T. Scitovsky himself proposed his own criterion of social welfare (“double Scitovsky criterion”), according to which improvement occurs only when the movement from the initial state to the final state satisfies the Kaldor-Hicks criterion , and the reverse movement does not satisfy it. However, as noted by R. Bodway and N. Bruce, when applying the Scitovsky criterion, although the problem of reversibility is solved, the problem of intransitivity remains open, which arises when comparing more than two states."

The presence of all the problems described above forced economists to look for some other way to compare different economic states. The American economist A. Bergson, and after him P. Samuelson, tried to introduce a social welfare function, which became known in science as the Bergson-Samuelson function. The construction of this function is based on individualistic philosophy (as, indeed, the constructions of I. Bentham, V. Pareto, N. Kaldor and J. R. Hicks), according to which: “social welfare is determined by the welfare of individual members of society. This function is subject to two general requirements. Firstly, it must comply with the Pareto criterion, i.e. if the utility of some members of society does not decrease, the function must increase. The second requirement (the requirement of symmetry) is that the value of the function should not depend. from the rearrangement of its arguments, which means the equal importance of all members of society, the purpose of this function is to determine whether one economic situation is better than another."

This function itself defines a system of social indifference curves and, according to its authors, allows one to compare different states based on an ordinal approach to utility, i.e. the function is aimed at ranking various states of the economy in terms of preference for society. However, this function still does not eliminate the main problem of welfare economics. Essentially, one needs to determine the contribution of each individual utility function to social utility, which means one has to return to interpersonal comparison of utility. In his works, P. Samuelson tried to prove that the social welfare function he proposed could cope with these problems, however, according to most economists, this problem remained unsolved.

The impossibility of solving these problems required a more rigorous theoretical formulation. Criticizing the idea of constructing a social welfare function, K. Arrow made an important contribution in this area. He, in particular, showed that “combining individual preferences will most likely not give an optimal solution, since public, i.e., total preferences do not have the transitivity property necessary to find the optimum. Another important result obtained by K. Arrow in within the framework of welfare economics, is the so-called Arrow impossibility theorem, according to which any collective choice that satisfies the requirements of complete orderliness and transitivity, universality, Pareto compatibility and independence from extraneous alternatives turns one individual into a dictator, i.e. there cannot be a public choice. both rational and democratic."

As a result, the economic theory of welfare began to gradually transform into the theory of public choice, within the framework of which a positive analysis of how various social preferences are formed and implemented is carried out. This section of economics is closely related to the study of the political process: the theory of the state, voting rules, voter behavior, etc.

In modern times, the 1998 Nobel laureate A. Sen is recognized as one of the most outstanding representatives of welfare economics. His contributions to this area of research relate to linking welfare economics issues with ethical principles. From his point of view, the further development of the theory of well-being requires the use of a richer, compared to utilitarianism (Utilitarianism is a direction in ethics (ethical theory), according to which the moral value of behavior or action is determined by its usefulness.), philosophical tradition associated with the concepts of freedom, rights, universal interdependence and recognition of the plurality of ethically significant statements

2. Views of economists on assessing the well-being of society

Welfare theory and criteria for its evaluation

As described in one authoritative publication, welfare economics (WE) is a general term for the normative aspects of economic theory. The basic premises underlying WE are value judgments that the economist is free to either accept or reject. Moreover, in contrast to positive economic theory, where in principle it is possible to empirically test the basic premises, this is impossible to do here. WE deals with policy recommendations and studies ways to move from one social state A to another - B - which is more preferable. The dominant school is the Pareto school, sometimes called New Welfare Economics. The most significant difference between this school and another associated with the name of Pigou is that it denies the principle of cardinal utility and the idea of interpersonal commensurability of utilities. Since the possibility of comparing the utility or welfare of different individuals is excluded, it is recognized that different pairs of social states cannot be ordered. In order to make more widespread use of the Pareto principle, the compensation principle was put forward. And to determine the optimum of optima, it was proposed to use Bergson's welfare function, which, however, assumes cardinal utility and interpersonal comparability.

This definition gives a general, although not very clear, idea of the theory of welfare and its subject. However, a number of points should be clarified.

It is easy to see that this contains the answer to the question posed above about the common good. For Smith it is national wealth or income; an individual good is an individual income. For Smith, there is not, and cannot be, a contradiction between them, and, what is very important, the free market best ensures the coordination of interests and the achievement of both individual and public good.

From here follows Smith's third thesis - a political imperative directly directed against mercantilism and which has become the slogan of the defenders of laissez-faire and remains so. The basic idea is that the best way to provide society with goods is achieved through the market mechanism with minimal government participation. Therefore, if we need to strive for something, it is to bring reality closer to the free market.

Welfare theory is mainly centered around the following range of issues:

V. Pareto's criterion for assessing well-being

The second approach is associated with the name of V. Pareto and, above all, with his work “A Course in Political Economy” (1896-1897). Arguing in line with the theory of general equilibrium, Pareto tried to give a meaningful interpretation to the statement that perfect competition ensures the achievement of maximum welfare. At the same time, he emphasized the ethical neutrality of his approach and limited himself to analyzing the problem of efficiency; refused to consider the nature of utility and recognized the impossibility of measuring utility and interpersonal comparison of utilities; considered the scale of preferences to be the only possible way to identify individual utilities; proceeded from the premise that no one except the person himself is capable of judging what is good for him; the question of the nature of people’s preferences went beyond the scope of economic theory.

The Pareto criterion is based on the representation of social welfare as a vector of individual well-being:

W = (W1, W2 … Wn) (1)

where Wi is the welfare of the i-th individual (1? i? n), n is the number of members of society.

Figure 1 - Possible configuration of the boundary of possible welfare.

W = (U1, U2 … Un) (2)

Evaluation criterionWelfare N. Kaldor-R. Hicks

Figure 2 - Kaldor-Hicks optimality criterion

The Kaldor-Hicks conclusion: a change in economic policy leads to improvement if those who gain value their gains above the amount that losers attribute to their losses.

Criterion for assessing well-being T. Sitovsky

Figure 3 - Optimality criterion by T. Sitovsky

In order to resolve this problem, Sitovsky proposed the following criterion:

a) use the Kaldor-Hicks test to determine whether moving from the original point to a new point improves the position of one of the individuals;

b) use the Kaldor-Hicks test to ensure that moving back from the new point to the original point will not make the situation worse.

According to Sitowski's criterion, if and only if movement from one point to another satisfies both statements, it will lead to improvement.

Note that if utility opportunity curves never intersect, the following problem may arise. At point J (Figure 4) Fedor’s position is better, and Tryphon’s position is worse than at point A.

1.5 A. Bergson’s criterion for assessing well-being

Figure 5 - Social welfare function

Thus, A. Bergson considered the problem of developing a value system. Such a system should be developed by economists, legislative and executive bodies. Creating such a system involves constructing a map of indifference curves that would reflect the social welfare function.

3. EconomicallyA. Pigou's theory of welfare

There are two approaches to resolving the issue of the essence of a public good. According to the first, a public good is characterized by an objective function that is subject to optimization. According to the second, it is in some sense the best state from the point of view of individuals.

The first approach allows us to develop the idea of socio-economic management, which presupposes knowledge of the social target function and ways to optimize it. But it does not answer the question of how to identify this function. One way is to vote and decide by majority vote, but this method does not generally guarantee the identification of public preferences. In line with this approach, A. Pigou (1877-1959) created the theory. In Wealth and Welfare (1912) and in its revised and expanded form under the new title Welfare Economics (1920), he developed the principle of “the greatest good for the greatest number.” Maximum welfare can be achieved through a more equal distribution of income, although this may negatively impact capital accumulation and productive energy.

The second approach to the analysis of well-being is associated with the name of Vilfredo Pareto (1848-1923) and his work “Course of Political Economy”4. Pareto tried to give a meaningful interpretation to the statement that perfect competition ensures the achievement of maximum welfare.

Instead of the concept of value, Pareto introduces the concept of “preference,” which has not a quantitative, but only an ordinal meaning. The ranking of utilities comes down to the order of preference for the corresponding goods. In this case, the preferences of not individual goods are comparable, but only of their sets.

To characterize preferences between sets of goods, Pareto uses the concept of “indifference curves”5, introduced by the English economist F. Edgeworth (1845-1926). Each point on such a curve corresponds to some combination of two goods, the total utility of which is the same at all points. In this case, indifference curves are replaced by indifference surfaces, the intersections of which in three-dimensional space provide paths for transition from one preference to another. This paved the way for the introduction of a new understanding of the optimum.

Pareto believes that equilibrium is characterized by five basic conditions (5):

1. Weighted marginal utilities (preferences) are equal for all goods;

2. For each subject, the amount of its income is equal to the amount of its expenses;

3. The quantity of all goods before and after the establishment of equilibrium is equal;

4. Prices of finished goods are equal to production costs under perfect competition;

5. The stock of productive goods is a given value and is fully used.

Equilibrium would last forever if these conditions remained constant.

However, the real meaning is not equilibrium, but the concept of optimum introduced by Pareto (Pareto optimum). This is a condition in which it is impossible to improve the position of any of the participants in the exchange without worsening the position of at least one of the others. When the economy reaches the Pareto optimum, then further improvement of any important indicators is possible only through a structural shift. This is the concept of social maximum utility.

An explanation for structural changes in the economy is provided by Pareto's law on changes in the distribution of income. “As a general rule, we can argue that an increase in wealth relative to population necessarily causes an increase in the minimum income or a decrease in income inequality, or both.”7 This makes Marx's socialist doctrine unnecessary, since in order to "raise the minimum income level or reduce the income gap, it is necessary to ensure a faster increase in wealth relative to population. Thus, we see that the problem of improving the living conditions of the poorest segments of the population is primarily a problem of wealth creation."8

No other path (in particular, the path of revolutionary changes in the name of establishing social justice) is acceptable. The trend towards decreasing differences between the incomes of the rich and the poor has a statistical basis. As a market economy develops, a level of GDP is reached, from which the Gini index does not increase, but decreases with further growth of GDP per capita. The result of this law is the emergence of a middle class, which forms the social basis of a developed market economy. The concepts of Pareto optimum and perfect competition are interrelated. A long-run perfect competitive equilibrium produces an optimal resource allocation, and every optimal resource allocation represents a long-run perfect competitive equilibrium.

At the same time, perfect competition should mean not only the absence of control over price and the uniformity of all goods and services sold, but also complete freedom of entry into and exit from the industry and full availability for each economic entity of all information important for making a profit.

4. Factorsdefcontributing to the well-being of society

Since the well-being of both an individual and a group of people is expressed through many, including quantitative, factors, including real income, housing conditions, length of working and free time, the capabilities of the education system, health care and security agencies, the political situation and etc. and so on. Because of this multiplicity and uncertainty, many believe that the qualitative categories themselves (well-being among them) cannot not only be described and defined, but even less measured. And the measurement is already closely related to indicators (or measures) of both well-being and the previously discussed poverty.

It is quite obvious that the category of well-being has, in a certain sense, the opposite meaning of poverty, i.e. The higher the welfare, the lower the poverty of the society. Although it cannot be said that in a society where there is high prosperity there is no poverty at all. It is also clear that both concepts are closely related to the distribution of goods in society, just as it was in the study of stratification. Very often, for simplicity, they do not take into account the distribution of all benefits, but only the distribution of one component of benefits - income. Incomes are not only observed by statistical authorities of both entire countries and individual parts of these countries, but are also regularly published.

Welfare sides

When measuring the degree or level of well-being of an individual household or person, if he is single, many factors are taken into account, among which, in addition to earnings, are also: a) age and sex composition of the household; b) place of residence of the household (city or village); c) property, i.e. provision of housing, cars and land, etc.

Why does it all start with the household and not the individual? The fact is, as already mentioned, that expenses in a household or family are distributed among all members according to a completely different principle than the income of individual household members received from society. The household follows the communist principle: from each according to his ability, to each according to his need. The ability to use this principle sets households apart from other groups of people. There are no offended people in households. Within their budget, of course, households (families) are determined by this very principle; they immediately disintegrate as soon as someone begins to consider themselves offended. In a civilized society, failure to use the common good cannot increase well-being.

The simplest example. Let's say a house was built for two independent residents who decided to unite to form one household. Now residents need one stove for cooking and one refrigerator for storing it. Instead of two bedrooms, you can get by with one, making the other a living room, which gives everyone the opportunity to receive their friends without interfering with the other’s rest in the other half of the house. Of course, there is a limitation - you cannot accept each of your friends at the same time. Let's imagine that this led to a breakup. One of the residents got a stove, and the other got a refrigerator. The living room disappeared and a second kitchen appeared, instead of an additional room. The question is: did they feel better? Has the welfare of society increased? After all, one of the former household members is now deprived of a stove, and another of a refrigerator, not to mention the fact that they have to pay more for utilities, etc. in total. Their total budget has decreased. This is the economic side of the issue.

But there are others. For example, the social side is the degree of homogeneity and stability of society; demographic - compliance with population development goals, changes in structure, growth, mobility; political - stability and mutual understanding; environmental - ensuring living conditions in the given territory. But this, of course, is not all. Now the information and technological side is also highlighted, connected primarily with the supply of personnel at various levels: countries, regions, sectors of the economy, the individual, finally, etc. In the future, in accordance with the objectives of the study, we will be interested in the motivation for finding a place to employ labor force, leading to ultimately to people’s incomes, their wealth, which determines income differentiation.

Returning to welfare, it is not superfluous to recall the difference between average per capita income and the income of an individual, which is sometimes referred to as per capita income, deviating from accuracy and formal rigor. Indeed, for a group of people the average per capita income is the same. It is equal to the total income of the entire group divided by the number of its members. While per capita income is calculated taking into account many components and, therefore, depends on the number of households, and on the number of people in each of them, etc.

Welfare Properties

When starting to study well-being, it is necessary to understand how poverty and prosperity relate to each other. If it were customary to use the term wealth in this case, then many questions about the relationship would disappear by themselves. In fact, if poverty is a need for something, a lack (shortage) of something, then prosperity means that everything you need is already there. If the poor are deprived of some of the goods, then people living in abundance can have not only what they need, but even something that they could do without. Thus, poverty, to put it more precisely and closer to the language of mathematics, is welfare with the opposite sign.

Decomposability property

Income distribution and welfare indicators are calculated from the income lists of individuals in regions and countries. Therefore, you can only deal with lists. However, it was noted that it is possible to simplify the calculations if we take a weighted average indicator of the country’s well-being, having only indicators of individual regions and weights equal to the share of the number of people in the regions in the population of the entire country.

Decomposability condition. The measure of the well-being of the entire society is equal to the weighted sum of the well-being of each part of it with weights equal to the proportions of the number of people living in the regions to the total population of the country.

Usually the welfare indicator is calculated very simply. Each income w is given some weight u(w). The income weights of all people are then added together. Since after this a large group, where, other things being equal, there are many people, will have more terms, and therefore a larger sum compared to a small one. To avoid such a drawback, the amount is divided by the number of people in the group, and the matter comes down to choosing positive weights that add up to one.

Monotonicity property

Monotonicity condition. The welfare indicator should increase as the income of at least one of the individuals increases

Preference property

Income equality in the study of well-being is that any transfer from one better-off group to another less well-off group cannot reduce well-being, but most likely even increases it. This property of well-being not decreasing from “income equalization” should correspond to our idea of well-being when two households merge into one, for example, two single people marry. Often, for brevity, this property is simply called alignment.

Indeed, two people forming two different groups must, for a normal life, purchase household items such as a refrigerator, kettle, stove, vacuum cleaner, etc., then by combining their incomes, instead of purchasing two such items, they can have only one, and spend the freed money on other benefits that will increase the well-being of each of them. Therefore, this principle is the basis of all cooperation: what is impossible or takes a long time to do separately can be quickly accomplished together.

Income equality preference condition. The welfare indicator does not decrease (increase).

Property of sensitivity to surcharges

It is based on the fact that additional payments to less wealthy people are more noticeable, increasing the well-being of the entire society, than additional payments to more wealthy people. Consequently, the taxation scale that exists in all developed countries, progressive with income growth, makes it possible to improve well-being by increasing the incomes of the poor, more tangible for them, by transferring through taxes a small part of the income of the rich.

...

Market conditions for the development of wealth

The needs of an individual, a social group and the entire society as a whole are so diverse that it is not possible for any government structure to take them into account fully and in the proper quality. Moreover, in this area there is a law of ascension of needs. Its action is manifested in the constant movement of higher-order needs to ordinary ones, and ordinary ones to lower-order needs. The result is the extinction of some needs and the emergence of new ones. That is why the market system makes it possible to create a flexible and effective mechanism for quickly adjusting the correspondence of goods and conditions from outside to the needs of society, and, therefore, ensuring the optimal formation of well-being for the individual.

With the assistance of the market, timely coordination of production structures and systems of solvent needs occurs. This is due to the promotion of the market as a neutral mechanism to social values, alignment of interests of different economic entities and the ability to lead to an increase in the well-being of the entire society. The public interest is ensured when each participant performs actions that meet only his interests. For example, if there is a product or service that is highly valued by consumers, but is not currently being produced, there will be people willing to pay for such a product or service. Entrepreneurs always take advantage of such opportunities. When the value of an individual product for the consumer exceeds the cost of its production, potential business profit occurs and the enterprise will produce these goods.

In this way, the market system highlights the real needs of society, while becoming a center of wealth and a platform for increasing consumption. The social significance of the market is complemented by the fact that in such conditions the only manager of the situation is a person as a consumer of goods.

State regulation of the welfare economy finds its manifestation in two points:

Creating an environment to support and develop the market mechanism for creating wealth;
Adjustment and modification of this mechanism according to changes in the conditions of economic development, norms of society and its values.

Types of public goods

All economic benefits are divided into:

Private;
Public;
Mixed.

When defining these types of benefits, auxiliary concepts are introduced.

An excludable good is something that can be removed from the consumption of the entire population except one individual who has paid a certain price for it.

Competitive goods include products or services that cannot be consumed simultaneously by several buyers. This category includes those goods and services that are consumed by one consumer and are eliminated in the consumption process, i.e. no longer exist. If it is possible, after consumption of a good by one business entity, its use by another, provided there are no additional costs, a non-competitive good occurs.

Private goods are understood as competitive excludable goods, and public goods are non-competitive and non-excludable. Intermediate goods and services are mixed. A mixed good is characterized by either simultaneously competitive and non-excludable goods, or excludable and non-competitive goods.

Figure 1 shows a table with criteria for the allocation of public goods.

Figure 1. Competitiveness and exclusivity criteria. Author24 - online exchange of student works

The attempt by economists to determine the optimal welfare without measuring individual utilities has a long history. Half a century before Pareto, J. S. Mill distinguished between the immutable "laws of production" and the flexible "laws of distribution" in an attempt to convince his readers that the question of the size of the pie could be separated from questions of the pieces of it. The belief that "efficiency" and "equity" can somehow be separated is one of the oldest illusions in economics. Virtually every economist before Pareto analyzed a policy as if it were possible to first discuss its effect on allocative efficiency given a given income distribution, and then complete the analysis by estimating the corresponding changes in the income distribution. However, the two stages were never clearly distinguished, so it was often difficult to see at what stage interpersonal comparisons of utility occurred. Pareto's merit was such a definition of social welfare, in which the distinction between efficiency and justice became crystal clear. But Pareto continued to believe that economic policy could be assessed on the basis of efficiency considerations alone. The development of "new" welfare economics, however, has cast doubt on this.

Recognizing that the discussion had reached a dead end, Bergson proposed assessing changes in welfare using the “social welfare function”, i.e. a system of social indifference curves that ranks various combinations of individual utilities in accordance with a system of value judgments about the distribution of income. Unfortunately, it remains unclear whether these should be the judgments of economists, legislators, voters, or some other special group of people, or how we should account for any differences in such judgments. After all, it is precisely these differences in the value judgments of different people and groups that constitute the main difficulty of welfare theory. The "new" theory of welfare, going back to Pareto, was an attempt to find out what could be said about general welfare without resorting to interpersonal comparisons. As a result of recent discussions, it has become clear that as soon as a strict taboo is imposed on interpersonal comparisons, very little remains. This does not mean, of course, that by attempting to make interpersonal comparisons we would obtain an impressive array of significant theorems relevant to economic policy. However, a true theory of welfare should invade rather than avoid the subject of applied ethics. In any social system there must be some consensus regarding the goals of society. Economic policy, however, is almost always a means to ends that are themselves not entirely clear; Moreover, some of them may contradict each other. Welfare economics should influence the formation of public consensus by providing clarity to the goals of various policies and demonstrating the consistency or incompatibility of policy ends with their means. This is not just wishful thinking: the work of economists such as Arrow, Black, Downe, Buchanan, Tulloch and Rothenberg on public choice and "consensus calculation" goes in this direction. Therefore, in the near future, it is possible that an interdisciplinary science will emerge at the intersection of political science and economic theory, which will save welfare theory from its ills.

Having said all this, we should warn the reader about the following. The "new" welfare theory strangely assumes that judgments concerning "efficiency" are not value-based, while judgments concerning "fairness" necessarily contain a value element. Interpersonal utility comparisons are only one type of value judgment, and perhaps not the most important of the value judgments that inevitably enter into welfare theory. Thus, the concept of Pareto optimal allocation of resources is based on three premises that are undeniably value judgments: (1) each person is best able to assess his own well-being; (2) social welfare is defined only in terms of the welfare of individuals; and (3) the well-being of individuals is not comparable. Although many people agree with these value judgments (at least among economists), even universal agreement with value judgments does not make them “objective”: they remain value judgments. In short, there is no “value-free theory of welfare,” and the phrase itself contains an internal contradiction. Increasing well-being means something desirable: when we talk about it, we inevitably make value judgments.

Welfare indicator

In economic practice, gross domestic product (GDP) has firmly taken the place of, if not the only, then the most important measure of social progress. In economic science, which does not recognize absolute truths, this indicator occupies a more modest place, since here it is assessed in the context of the history of economic teachings. Economists know many examples of how, with the development of productive forces, new concepts are born, but one of the old concepts is preserved in the everyday consciousness for a long time, although it no longer corresponds to the realities of social life.

The idea of using a monetary unit as a measure of well-being apparently arose simultaneously with the advent of money, but as a theoretical concept it first took shape within the framework of mercantilism. The classics, led by Adam Smith, added to the mercantilist philosophy the concept of labor value, which views the physical labor of the worker as the only source of wealth. The cost approach to measuring wealth received its logical conclusion in the works of the English economist Arthur Pigou. He defined economic well-being as that part of total well-being that can be measured by money. At the same time, Pigou openly admitted that “economic well-being does not serve as a barometer, or indicator, of well-being as a whole.”1 He completely bypassed the problem of quantitative assessment of general well-being, since he did not attribute it to the subject of economic science.

The value interpretation of well-being has long occupied a dominant position in economics, and many researchers have even begun to identify economic well-being with general well-being. At the same time, as productive forces develop, the total volume of physical labor is steadily declining, and, therefore, the objective basis of the concept of labor value and monetary measures of wealth is narrowing. Economic well-being is losing its ability to replace, in theory and in practice, general well-being, which covers such socially significant goods as education, health, culture, family, security, etc. The problem of measuring general well-being has turned out to be difficult for economists who are accustomed to operating in value terms. They strive to overcome this complexity by abstracting from the real problems of social life, constructing hypothetical functions of social utility, and using complex mathematical methods. It is characteristic that one of the most famous provisions of modern welfare theory is called the “impossibility theorem.” As a result, a gap has formed between the formal and abstract content of the dominant concept of welfare and the urgent tasks of the state, which needs theoretically based and simple methods for measuring social progress.

Most modern economists are skeptical about the prospect of creating an integral indicator of overall well-being. At the same time, one direction of research leads, in our opinion, to solving this problem. We mean a temporary concept of general welfare, which is based on the postulate of the absolute value of human life. It follows from it that well-being is measured not by money, but by natural units of life, i.e. units of time. This approach develops the methodological principle of the classical school, which establishes a direct connection between the exchange value of a product and the mass of labor time embodied in it. Since the classics convert working time into economic welfare, it is logical to assume that all time in a person's life is converted into general welfare. Then social welfare is equal to the total human life time of all members of society.

The essence of the temporal concept of well-being lies in the concept of “human life time,” which means the total duration of the highest, creative, actually human, activity of an individual. It does not include lower activities: sleep, physical labor, empty pastime, etc. The time of human life acts as creative time, and well-being - as creative well-being (from the English creative - creative, creative). The philosophical basis of the concept of creative well-being is the theory of creative evolution of the French philosopher Henri Bergson, who identified human time and higher activity: “Time is an invention, or it is nothing.”3 Its economic basis is the theory of economic development of Joseph Schumpeter, who considered the creativity of an entrepreneur as the most important source of social progress. 4. Based on the above, the concept of creative well-being can also be called the Bergson-Schumpeter concept.

Effective public policy must take into account the relative importance of welfare factors. Despite the fact that health and education indices are presented symmetrically in the formula for calculating social welfare, equal budget expenditures directed to these sectors will lead to different relative changes in the corresponding indices. The priority direction of welfare policy is associated with the industry in which the ruble of budget expenditures will provide the largest relative increase in the factor index.

Population health should be recognized as a priority goal of Russian economic policy for two reasons. Firstly, average life expectancy depends significantly on the level of education of the population. Therefore, the health index depends on the education index and, because of this, it can serve as an independent measure of social well-being. Secondly, in practice, social priorities are usually determined on the basis of cross-country comparisons of statistical data characterizing various aspects of well-being. Russia leads among six European countries in terms of the number of third-level education students, but lags significantly behind in terms of life expectancy. The immediate cause of the negative health situation of Russians is the low level of healthcare spending. The share of healthcare costs in GDP in developed countries is many times higher than in Russia: in the UK - almost 3 times, in Germany - 4 times, etc. At the same time, the share of spending on education does not significantly exceed the Russian level. As one would expect, the level of financing of the social welfare factor has a decisive influence on the achieved level of the corresponding target indicator of social development. A necessary condition for increasing the average life expectancy of Russians is a significant increase in the share of healthcare expenditures in GDP, which can only be achieved by sharply increasing the share of budget expenditures on healthcare. Thus, in the current socio-economic situation, the role of the life expectancy indicator in the system of economic policy goals is comparable to the role of the GDP indicator.

The advantage of the life expectancy indicator compared to real GDP is that the procedure for calculating it is transparent and does not allow arbitrary interpretation. As for the procedure for calculating real GDP, it is unknown in detail even to interested specialists in this field. Let's look at this issue in more detail. As is known, real GDP is equal to the ratio of nominal GDP and the GDP deflator.7 The numerator of this fraction is formed as a result of collecting data on current economic activities, which have a high degree of reliability. The GDP deflator is a complex theoretical concept; it reflects changes in the prices of all products and their shares in the current volume of GDP. A strict definition of the deflator does not provide an instrumental method for calculating its exact value due to the huge variety of products produced, therefore in practice approximate methods are used. This opens up the potential for manipulating the value of real GDP. If, for example, when calculating the deflator, we exclude from consideration a group of goods that have become more expensive than others, then the deflator will become less than its exact theoretical value, and real GDP will be greater. The reliability of the deflator value will not raise doubts only when an unshakable rule is established that determines which goods and in what volumes are taken into account when calculating it, which are considered insignificant, etc. The unresolved methodological problem of calculating the deflator affects the completeness and quality of official statistical information. Thus, in the Russian Statistical Yearbook, real GDP is completely absent among the main socio-economic indicators, and instead of the GDP deflator, sectoral producer price indices and the consumer price index are given.

The life expectancy indicator is a relevant, objective and measurable characteristic of social well-being, therefore it is advisable to include it, along with real GDP, among the most important targets of state economic policy.

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introduction

Throughout his life, a person strives for balance, the correct distribution of income, products and everything that a person has. Therefore, it was necessary to create some rules, and gradually the economic theory of welfare arose. So, welfare is the provision of the state, class, social group, family with material, spiritual and social benefits. The well-being of a social group, family, etc. directly depends on the well-being of the state in which they are located. welfare economic pigou pareto

Modern welfare economics arose from two sources. The first of these is the normative analysis of personal well-being, or the utility that an individual derives from the environment. This source goes back to the concept of utilitarianism founded by Jeremy Bentham. The second source is the mathematical theory of elections and collective decisions, dating back to the work of French mathematicians Jean-Charles Borda and Marie-Jean-Antoine-Condorcet. The mathematician Charles Johnson also made his contribution in this direction.

The economic theory of welfare is closely related to the theory of general equilibrium, as it studies the best distribution of goods between people and production resources between industries. The optimal distribution of any resource or consumer good cannot be determined based only on partial equilibrium in the market for this resource or good. It depends on the situation on the markets, on their interconnection and interdependence.

This theory depends ultimately on individual value judgments, the truth or falsity of which cannot be established with certainty, although, based on logic and empirical knowledge, appropriate ethical criteria can be developed so that an "acceptable level" of general agreement on what you should see what you want, it is not at all unattainable in principle.

The first chapter of this work examines the main theoretical provisions of the economic theory of welfare.

The second chapter examines the views of V. Pareto on the economic theory of welfare.

The purpose of this test is to review the basic principles of the economic theory of welfare. To achieve the goal, it is necessary to solve two problems: to study the theoretical foundations of the economic theory of welfare and to monitor the process of resource distribution in a market economy.

Chapter 1. Basic theoretical principles and general characteristics of the economic theory of welfare

1.1 Evolution of views on welfare issues

Humanity, like the individual, has always strived to achieve well-being. Already in the ideas of early utopian socialism, the abolition of private property, egalitarian distribution and complete regulation of public life seemed to be the only condition for achieving universal happiness. Representatives of this doctrine believed that a person is unhappy because he is envious of his more successful neighbor. And there is only one way to destroy envy - to make everyone the same.

This idea was expressed especially clearly by T. Campanella, an Italian Dominican monk and a Frenchman, Morelli. But it must be borne in mind that achieving the sameness of people, which presupposes their complete absence of any property, destroys not only envy, but also the mechanism of social comparison, which is the basis for the dynamic development of both the economy and other aspects of social life. It is no coincidence that the ideal model of society for representatives of early utopian socialism is a stationary model, working according to the scheme of simple reproduction.

The ideologists of capitalist production, with their philosophy of selfishness and individualism (A. Smith), in the theory of welfare, focused on production, viewing welfare as a synonym for wealth, where wealth was considered as products of material production. Within the framework of these ideas, the basis and source of well-being is the accumulation of national capital, and the indicator of the level of well-being is the growth in the amount of goods per capita or the net income of the nation, which in turn depends on the resources of capital, land and labor. It follows that the factors of economic growth, the most important of which was the accumulation of capital and the division of labor, automatically became factors in the growth of well-being. The classics unanimously considered the system of “natural freedom” to be a prerequisite for the growth of national wealth.

The origins of modern theories of welfare should be sought in utilitarianism - an ethical theory that recognizes the usefulness of an action as a criterion of its morality. The founder of this theory was the English philosopher I. Bentham (1748--1832), who believed that philosophy has no more worthy occupation than supporting the economy in everyday life. Bentham called well-being the goal of any human action. Consequently, according to Bentham, the only universal social science should be “eudaimonics” - the science of achieving well-being. Bentham proposed measuring well-being by subtracting the amount of suffering from the amount of pleasure over a certain period of time. In his theory, he proceeds from the fact that every person can perform those arithmetic operations that are necessary to obtain maximum happiness. It should be noted that in Bentham's concept a person is only a consumer; the sphere of production interests him very little. Moreover, it is aimed at immediate consumption - future pleasures, according to the “arithmetic of happiness,” are considered with less weight than present ones. This person (Bentham's universal consumer) is well recognized; it is he who becomes the main figure of marginalist analysis. And the same G. Gossen, who was the first to formulate the law of diminishing marginal utility from traditional economic science, took precisely the philosophy of utilitarianism with its principles of reasonable egoism, subjective comparison of benefits and sacrifices, pleasure and suffering. He even proposed renaming political economy Genusslehre, that is, the doctrine of satisfaction (or pleasure), where maximizing pleasure (utility) becomes the most important principle of social management.

In Bentham, as in the marginalists, we see the reduction of all motives of human behavior to the achievement of pleasure; They view wealth as a special case of pleasure. This is the first difference between the views of Bentham and Smith. The second difference is that Bentham did not trust the coordination of individual aspirations for well-being to the market and competition, considering this the prerogative of legislation, where the ideal set of laws should be built on the principle of “maximum happiness for all.” It is worth noting that Bentham’s views had a great influence not only on representatives of the marginalist trend in economic science, but also on Sismondi, who believed that the science of management should set as its goal the happiness of people united in society. In his words, “...it seeks means to secure for men the highest welfare consistent with their nature.”

The next paragraph will examine the contribution of Arthur Pigou to the creation of the economic theory of welfare, since Pigou's work laid the foundation for the theory of distribution of national income and put forward the problem of combining the economic interests of individuals, firms and society.

1.2 Arthur Pigou's contribution to welfare economics

A significant contribution to the development of neoclassical ideas was made by the student and follower of Alfred Marshall, a representative of the Cambridge school of neoclassics, Arthur Pigou (1877-1959). The scientist's main ideas were reflected in the work "Economic Theory of Welfare" (1932), which began a new direction of economic research and the first attempts to theoretically substantiate the economic functions of the state. When discussing the problems of economic research, the scientist emphasized the realism of economic science, the scope of which should be determined by practical tasks. According to A. Pigou, the germ of economic science should not be a passion for knowledge, but public enthusiasm that appears against the squalor of dirty streets and the bleakness of mutilated lives. Consequently, the scientist saw the goal of his own research as finding convenient practical tools for ensuring well-being, in other words, developing measures that, based on the proposals of economists, a statesman can take. Taking this into account, A. Pigou substantiated the concepts of economic well-being and its most important factors. Arguing that the category of social welfare reflects elements of our awareness and can be described in a “more-less” framework. The scientist deliberately limited his own research to the sphere of social welfare in which the scale of measurement using pennies can be directly or indirectly applied. The scientist called this area of public welfare economic welfare.

Arguing that there is no clear limit between economic and non-economic well-being, A. Pigou drew attention to the fact that economic well-being does not serve as a barometer or indicator of well-being in general, since well-being often changes, while economic well-being remains at the previous level; and yet changes in economic well-being rarely correspond to the same changes in well-being as a whole. Consequently, the scientist noted that the concept of individual well-being is not limited to its economic aspect and includes such indicators of quality of life as environmental conditions, working and leisure conditions, access to education, public order, medical care, and the like.

A. Pigou considered the most important indicator of economic well-being, its “double”, the national dividend, that part of the material income of society (including, of course, income that comes from abroad), which can be expressed in pennies. Thus, the scientist determined economic well-being through national income - the value that remains after deducting the costs of reimbursing spent capital goods from the annual flow of goods and services for final consumption.

The scientist determined the economic well-being of society:

The size of the national dividend;

The method of distributing it among members of society.

Determining the criteria for maximizing the economic well-being of society in terms of optimal allocation of resources, A. Pigou used the concept of the marginal net product. He argued that equalizing the marginal net products resulting from multiple uses of resources allows for the maximization of the national dividend. The scientist considered free competition, capable of ensuring the realization of private interests and the unlimited movement of goods, to be a necessary prerequisite for achieving this state.

Having analyzed the problems of strictly accounting for the volume and dynamics of the national dividend, A. Pigou was one of the first to draw attention to the imperfection of the national income indicator as a measure of economic well-being, noting that the monetary measurement of the material income of society can be attributed to the most incredible paradoxes. Let's look at some examples:

“If a person rents a house that belongs to a certain person and the furniture in this house, then the services received by this person are included in the national dividend, but if this person received the house with the furniture as a gift, then such services are not included in the national dividend.

If a farmer who has sold the products of his farm buys the food his family needs at the market, then a significant part of the goods he purchased will be included in the national dividend; however, these products will no longer be included in the national dividend if the farmer, instead of buying goods on the market, keeps part of the produced meat and vegetables.

The philanthropic activities of unpaid organizations, church ministers, Sunday school teachers, and the scientific work of selfless experimenters are not yet included in the national dividend.

The national dividend includes nominal wages, much less than their real value.

Systematic harm to nature does not affect the value of the national dividend.

Women's labor, whether employed in the factory or at home, is counted in the dividend when it is paid for, but is not counted when wives and mothers work unselfishly in their own families. If a man marries his housekeeper or cook, the national dividend is reduced."

Carried out a study of the problem of coordinating the economic interests of individuals, firms and society as a whole in the context of distribution relations. When discussing the problems of economic well-being, A. Pigou distinguished between the well-being of individuals, social groups and society as a whole. In this regard, the scientist highlighted:

Social net product as “the aggregate increase in the national dividend;

Private net product, as “an increase in goods that can be sold, as well as an increase in the income of the individual who provides capital investment.

The starting point in his theoretical construction was the idea that free competition does not ensure balancing of private and public net products and automatic coordination of the interests of society and individuals.

Thus, unlike his predecessors, A. Pigou analyzed not the static market equilibrium, but the deviation from it. In his work, A. Pigou often refers to the treatise “The Principle of Political Economy” published in 1883 by the English researcher Henry Sidgwick (1838-1900), who was at the origins of the economic theory of welfare.

G. Sidgwick was one of the first to draw attention to the differences between the same concepts depending on the micro- or macroeconomic levels of analysis. In contrast to the “classics,” he argued that the system of “natural freedom” creates a conflict between private and public interests and does not provide an effective solution to many socio-economic problems, especially in the field of distribution. Having outlined the need to limit the “laissez faire” system (the principle of non-intervention) on the basis of state intervention in economic life, G. Sidgwick believed that a more equal distribution of public goods increases the overall level of well-being of the nation.

With the emergence of monopolies that violate the foundations of market competition, preventing the free movement of resources. Analyzing this problem, A. Pigou first introduced the terms “imperfect” and “monopolistic competition”, which played an important role in the studies of the next generations of neoclassics.

Arguing that private entrepreneurial activity, which provides an appropriate net product, can bring both benefits and losses to society, the scientist laid the foundation for the modern theory of externalities. He identified positive externalities, due to which the marginal private net product is less than the corresponding social product due to the fact that by-product services are received by some third party, which is technically difficult to pay for these services. According to the researcher, examples of positive externalities can be cases when:

“The services of a conveniently located lighthouse are mainly used by ships, which cannot be forced to somehow pay for these services.

Investing in the construction of roads or private routes, which increases the prices of land located nearby.

Investing in forest plantings, installing lights at the doors of private houses, investing resources that are used to clean up emissions from factory chimneys.”

Negative externalities that cause “marginal private net product to exceed social net product.” According to the scientist, we can talk about collateral uncompensated losses for third parties under conditions where, for example, one person is busy breeding rabbits that devastate vegetation in lands that belong to another person.

Arguing that under conditions of free competition there are circumstances that prevent the automatic achievement of the optimum, A. Pigou drew attention to the fact that in cases where private enterprises are left to themselves, the distribution of resources (even under conditions of free competition) becomes the least favorable ( of all possible) in a way from the point of view of influencing the national dividend. Consequently, the scientist concluded that it was necessary to supplement the policy of "laissez faire" with state regulation of economic life, noting that even Adam Smith did not fully realize how much the "System of Natural Liberty" needed protection through special laws so that it could ensure the most productive use resources."

Depending on the maximization of the national dividend on the action of two complementary forces (private and public interests), A. Pigou identified two forms of government intervention in economic life:

1. direct, justified under conditions of monopolization of the economy and associated with state control over prices and production volume;

2. indirect (mediated), justified under conditions of free competition and associated with the taxation mechanism.

“For any industry in which there is reason to believe that as a result of the free implementation of industrial interest, resources will not be invested in the amount that is necessary from the point of view of increasing the national dividend,” the scientist noted, “there are grounds for government intervention.”

Consequently, under the conditions of a market economy, the task of the state, according to the English researcher, is to internalize external effects, to transform the difference between private and public interests from implicit to explicit. “The government is able to reduce the gap between relevant products in one area or another by providing investment in this area,” wrote A. Pigou. He considered the most important forms of providing such support and imposing restrictions to be substitutes, respectively, taxes.

A. Pigou's idea that the presence of external effects makes government intervention in the economy legitimate was questioned only in the 60s. XX century, when the Nobel Prize winner in 1991, the American economist R. Coase proved that the presence of external effects is associated with the institutional environment and blurred property rights. The specification of the latter, according to G. Coase, makes it possible to internalize external effects and excludes government intervention in the economy under conditions of free competition.

Defending the principles of “the greatest good for the greatest number of people,” A. Pigou adhered to the idea that the most important factor that influences the well-being of society is the distribution of national income. The outcome of this theoretical position was the assertion that maximization of social welfare could be achieved through a more equal distribution of income, even if this negatively affected the accumulation of capital and private initiative.

Based on the law of descending marginal utility and A. Marshall's idea regarding the different value of the same amount of money for rich and poor people, the scientist argued that the losses caused to the economic well-being of the wealthy if their right to manage resources is transferred to the poor will be significantly less in compared with gains in economic well-being for the poor. From this, the scientist concluded that as long as the size of the dividend as a whole does not decrease, any significant increase in the real incomes of the poor due to a corresponding decrease in the real incomes of the relatively rich will lead to an increase in economic well-being.

Consequently, the scientist defended a system of progressive taxation according to the principle of “least aggregate sacrifice.” He pointed out the need for the tax rate to depend on the amount of income of a person, the use of preferential prices for goods, the introduction of an inheritance tax, the encouragement of voluntary donations, and the like.

It is important to note that the works of A. Pigou contributed to a gradual departure from the orthodox version of the quantity theory of money. The scientist made adjustments to the research methodology of the American economist I. Fisher (1867--1947), the author of the famous monetary exchange equation. He proposed to take into account the influence on the motives of behavior of business entities, the desire to save part of the money as a reserve in the form of bank contributions or securities.

In modern neoclassical theory, the so-called “Pigou effect” or “real cash balance effect” is widely used, according to which an increase (decrease) in the price level should have the ability to reduce (increase) the real value (or purchasing power) of financial assets, especially those with a fixed monetary value ( fixed-term accounts, bonds), making it possible to reduce (increase) total spending in the economy.

Thus, different people with different ideologies view welfare economics in different ways. Every person is looking for a criterion of well-being for himself.

In general, Pigou’s economic theory, oriented towards new conditions for the development of society, addressed problems that were almost simultaneously studied by representatives of the Keynesian school, which also emerged from the Cambridge school.

CHAPTER 2. V. PARETO’S VIEW ON THE ECONOMIC THEORY OF WELFARE

2.1 Pareto optimum: search for an efficiency criterion

According to his economic views, V. Pareto (1848-1923) can be classified as a representative of the Lausanne School of Economics. Like Walras, Pareto considered political economy to be a kind of mechanics that reveals the processes of economic interactions based on the theory of equilibrium. In his opinion, this science should explore the Mechanism that establishes a balance between the needs of people and the limited means of satisfying them. V. Pareto made a significant contribution to the development of the theory of consumer behavior, introducing ordinal ones instead of the quantitative concept of subjective utility, which meant a transition from the cardinalist to the ordinalist version of the theory of marginal utility. Further, instead of comparing the ordinal utility of individual goods, Pareto proposed a comparison of their sets, where equally preferable sets were described by indifference curves.

According to Pareto, there is always a combination of values in which the consumer does not care in what proportion he receives them, as long as the sum of these values does not change and brings maximum satisfaction. These provisions of V. Pareto formed the basis of the modern theory of consumer behavior.

But Pareto is best known for his principle of optimality, which was called the “Pareto optimum,” which formed the basis of the so-called new welfare economics. The Pareto optimum states that the welfare of society reaches its maximum, and the distribution of resources becomes optimal, if any change in this distribution worsens the welfare of at least one subject of the economic system. In a Pareto optimal situation, it is impossible to improve the position of any participant in the economic process without simultaneously reducing the welfare of at least one of the others. This market state is called a Pareto-optimal state. According to the Pareto criterion (a criterion for the growth of social welfare), movement towards the optimum is possible only with such a distribution of resources that increases the well-being of at least one person without harming anyone else.

The starting premise of the Pareto theorem was the views of Bentham and other early representatives of utilitarianism among economists that the happiness (considered as pleasure or utility) of different people is comparable and additive, that is, they can be summed up into a certain common happiness of all. And, according to Pareto, the criterion of optimality is not the general maximization of utility, but its maximization for each individual within the limits of possessing a certain initial supply of goods.

Based on the premise of rational behavior of the individual, we assume that the company, when producing products, uses such a set of production possibilities that will provide it with the maximum discrepancy between gross revenue and costs. The consumer, in turn, purchases a set of goods that will maximize his utility. The equilibrium state of the system presupposes the optimization of objective functions (for the consumer - utility maximization, for the entrepreneur - profit maximization). This is the Pareto-optimal state of the market. It means that when all market participants, each striving for their own benefit, achieve mutual equilibrium of interests and benefits, total satisfaction (the overall utility function) reaches its maximum. And this is almost what A. Smith talked about in his famous passage about the “invisible hand” (though not in terms of utility, but in terms of wealth). Subsequently, the theorem was indeed proven that the general market equilibrium is the Pareto-optimal state of the market.

So, the essence of Pareto's views can be reduced to two statements:

Any competitive equilibrium is optimal (direct theorem),

The optimum can be achieved by competitive equilibrium, which means that the optimum selected based on certain criteria is best achieved through the market mechanism (the inverse theorem).

In other words, the state of optimal objective functions ensures balance in all markets. Optimization of objective functions, according to Pareto, means choosing the best alternative from all possible by all participants in the economic process. However, it should be noted that the choice of each individual depends on prices and the initial volume of goods that he has, and by varying the initial distribution of goods we change both the equilibrium distribution and prices. It follows that market equilibrium is the best position within the framework of an already formed distribution system, and the Pareto model assumes that society is immune to inequality. This approach will become more understandable if we take into account the “Pareto law”, or the law of income distribution. Based on a study of the statistics of a number of countries in different historical eras, Pareto established that the distribution of income above a certain value retains significant stability, and this, in his opinion, indicates the uneven distribution of natural human abilities, and not the imperfection of social conditions. This resulted in Pareto’s extremely skeptical attitude towards issues of social reconstruction of society.

However, it is difficult to dispute the position that the optimal, according to Pareto, is very often socially unacceptable. Therefore, even in line with the neoclassical direction of political economy, other theories of welfare are being formed.

2.2 Pareto welfare function

Let's consider a geometric example of solving the distribution problem for the case of two individuals. Suppose an indicator of an individual's well-being is the utility he receives, which in turn depends only on the individual's income. On the x-axis we will plot the income received by individual A (IA), and on the ordinate axis we will plot the income of individual A (IB). A line drawn at an angle of 45° will show us the equal distribution of income between individuals, so let's call it the ray of equality. The line shows how the same social “pie” can be divided between two individuals (i.e., it is the limit of possible income). The original distribution corresponds to point K, the equal distribution of income is indicated by point L.

Suppose now that the utility received by an individual depends not only on his income, but also on how income is distributed in the community. Individual B is concerned about inequality in society, and for this reason, in the process of redistribution, as his income increases, his own utility increases, while the utility of individual A decreases, only up to a certain point (point M). As inequality further increases, its utility decreases. Similarly, the utility of individual A decreases as the utility received by individual B decreases below the level corresponding to point N. We have thus assumed the existence of externalities in consumption, and their magnitude is directly dependent on the degree of inequality in society.

Let us assume that the action of the market mechanism led to the distribution of utilities corresponding to point K, so that one of the members of society (B) turned out to be rich, and the other (A) - poor. Going to any point on the KL section will be an improvement according to the Pareto criterion. In the case of two individuals, one can expect that the rich person will voluntarily “share” with the poor person (i.e., a voluntary transfer will take place).

However, this may not happen if there are many individuals in a society. Charitable redistribution of income is like a public good, and if the number of participants in the redistribution process increases, then citizens' expectations that someone else will fulfill their duty also increase. The role of the state is that by replacing voluntary transfers with forced redistribution of income through the tax system, it solves this problem, and these actions lead to Pareto improvement.

Many Pareto-efficient points in Fig. 2 belongs to section MN, any transition between points in this section is not comparable according to the Pareto criterion. But if not the social welfare vector is used, but the Pareto welfare function, a single optimal point can be found on the section MN.

Having determined the social welfare function, we can construct lines on which this function takes fixed values - indifference curves for society as a whole. The social indifference curve (CIC - community indifference curve) unites the points at which the welfare of society will be the same. CICs for the Pareto welfare function have a negative slope: an increase in the utility of one of the individuals will not lead to a change in social welfare only if the utility of the other individual decreases slightly. The CICs for a symmetric utility function are symmetric about the line of equal utilities (central angle bisector). The higher the CIC lies, the higher the level of social welfare it reflects.

The concept of optimum when using the social welfare function and its difference from the concept of Pareto efficiency. Let us pay attention to the appearance of the boundary of possible utilities. The specific shape of this boundary depends on the utility functions of individuals. We assumed above that individuals' utility depends only on the income they receive, but the relationship between income and utility may differ between individuals. The same income may bring unequal utilities to different individuals; accordingly, the boundary of possible utilities may not be symmetrical relative to the line of equal utilities.

Pareto efficient are all points on the arc MN of the consumer possibilities curve; none of them is Pareto-preferred to any other - they are all Pareto-incomparable. However, the social welfare function reaches a maximum only in one of them - at the point of tangency C with the curve of possible utilities and the social indifference curve CIC1.

The specific location of the optimum point depends on the properties of the welfare function. For any Pareto function, the optimum point will be Pareto-efficient, i.e. it will be located on the arc MN. There are also specific welfare functions: the Bergson-Samuelson welfare function, the maximax welfare function, etc. All of them are symmetrical, but built on the basis of different value systems; Accordingly, the states that each of them considers as optimal will also be different.

CONCLUSION

Welfare is an extremely important element in the life of not only one individual, but also of any state. Welfare economics is an ideal that people strive to achieve. Despite the fact that this ideal is not achievable, it is good because when striving for it, a person makes the state of his life better, revises his ideas for the better, from an economic point of view, in a direction.

Some may say that welfare economics is elusive and ask questions like “why pursue frivolous questions?” I can answer this way: the minds of many economic figures and scientists are occupied with questions of the economic theory of well-being. Well-being affects absolutely all spheres of human activity, not only economic. Since ancient times, scientists have dealt with these issues only in passing. A. Pigou and V. Pareto thoroughly tackled the issue of welfare at a serious level. It was they who proved that the development of welfare theory can, like a chain reaction, improve all areas of the economy. That is, if you start to develop one area, then the next one along the chain will begin to improve, and so on.

Arthur Pigou believed that economic well-being cannot be an indicator of human well-being, since a person’s well-being is influenced not only by himself, for example, his financial security, but also by the state of the environment, relationships with other people, etc., that is, on well-being people are also influenced by non-economic factors.

The Pareto optimum is that the optimal state of the market is achievable only if any change in the distribution of resources worsens the welfare of at least one subject.

The difference between Pigou's economic theory of welfare and the Pareto optimum is that Pigou considered the free functioning of market competition to be an insufficient condition for optimizing overall welfare.

It can be concluded that further development of the economic theory of welfare is necessary. It is necessary to take it into account when solving important economic issues.

LIST OF REFERENCES USED

1. Galperin V. M., Ignatiev S. M., Morgunov V. I. Microeconomics in 2 volumes. - St. Petersburg. : Economic School 2006.

2. Economic school. Issue 5. Akimov D. V. Theory of public welfare and economics of the public sector. //(National Research University - Higher School of Economics)-2004.

3. Chepurin M. N. Course of economic theory. - Kirov: Publishing house ASA-2006.

4. A. Pigou Economic theory of welfare. - M.: Progress-1985.

5. Galperin V. M. Welfare economics and public choice - milestones in economic thought. - St. Petersburg. : Economic School 2008.

6. M. Rothbard On the reconstruction of the economic theory of utility and well-being. - M.: Sotsium-1956.

7. Course of economic theory / ed. Sidorovich A.V. - M.:

8. History of economic doctrines / Ed. V. Avtomonova, O. Ananina, N. Makasheva: Textbook. Benefit. - M.: INFRA-M- 2001.

9. G. P. Zhuravleva. Economics: textbook for universities - M: Economist, 2006.

10. Bartenev, S.A. History of Economic Thought. - M.: Lawyer,

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