Monotonicity of social welfare optima

TY - JOUR

T1 - Monotonicity of social welfare optima

AU - Hougaard, Jens Leth

AU - Østerdal, Lars Peter Raahave

N1 - JEL classification: C71, D60, I10

PY - 2010/11

Y1 - 2010/11

N2 - This paper considers the problem of maximizing social welfare subject to participation constraints. It is shown that for an income allocation method that maximizes a social welfare function there is a monotonic relationship between the incomes allocated to individual agents in a given coalition (with at least three members) and its participation constraint if and only if the aggregate income to that coalition is always maximized. An impossibility result demonstrates that there is no welfare maximizing allocation method in which agents' individual incomes monotonically increase in society's income. Thus, for any such allocation method, there are situations where some agents have incentives to prevent society in becoming richer.

AB - This paper considers the problem of maximizing social welfare subject to participation constraints. It is shown that for an income allocation method that maximizes a social welfare function there is a monotonic relationship between the incomes allocated to individual agents in a given coalition (with at least three members) and its participation constraint if and only if the aggregate income to that coalition is always maximized. An impossibility result demonstrates that there is no welfare maximizing allocation method in which agents' individual incomes monotonically increase in society's income. Thus, for any such allocation method, there are situations where some agents have incentives to prevent society in becoming richer.

KW - Former LIFE faculty

U2 - 10.1016/j.geb.2010.03.004

DO - 10.1016/j.geb.2010.03.004

M3 - Journal article

SN - 0899-8256

VL - 70

SP - 392

EP - 402

JO - Games and Economic Behavior

JF - Games and Economic Behavior

IS - 2

ER -