2 - Social objectives and direct decision making

Summary

Any book on normative economics ought to begin with some discussion of social objectives. Since the meat of this book involves practical methods for evaluating such objectives, and since the extant literature on social choice theory is voluminous, we choose not to spend a great deal of time on the subject here. However, a short discussion of our basic philosophy is in order.

Fundamental to our approach is the implicit acceptance of “consumer sovereignty.” Operationally, this principle means that only measures of individual preference affect social choice. We reject the paternalist view that government knows better than its citizens what is good for them. Having taken this position, it remains to decide how to measure individual preference and how to reconcile differences among these individual preferences.

We also accept the classical view of economic person as utility maximizer. If we think of preference as revealed by choice, the underlying choice functions must be consistent. Although violations of this principle of rationality can be found in the experimental literature, they seem to be exceptions rather than the rule, at least in a certainty context. Assumptions of rationality in an uncertainty context generate more serious objections, which we will comment on later. Unfortunately, we would not make much progress in this book if we tried to drop all principles of rationality unless we also dropped consumer sovereignty; the planner will have a hard time keeping hands off consumer preferences when they are inconsistent.