The Paradox of Interpersonal Cardinal Utility: A Proposed Solution
journal contributionposted on 08.06.2017 by Ng, Yew-Kwang
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The impossibility theorems of Arrow, Sen, Kemp-Ng, and Parks show that interpersonally comparable individual cardinal utilities are needed for making social decisions. But virtually all economists regard cardinal utility and interpersonal comparisons of utility as practically impossible to obtain, if not conceptually meaningless and/or scientifically inadmissible. This paradox (Section 1) can be largely solved by a simple method (Section 2). Almost incredibly, this simple method calls for treating a dollar as a dollar except in the general tax/transfer system. This achieves a tremendous simplification in the formulation of economic policy in general and in cost-benefit analysis in particular. More astonishingly, pursued to its logical conclusion (Section 3), the argument compels us to say that, economists, as a group, should be in favour of the reversed weighting system (counting a dollar to the poor as worth less than a dollar to the rich)! The separation of "polity" (where "one person one vote" instead of "a dollar is a dollar" applies) from "economy" is mainly sustained by the attitudes of non-economists (Section 4).