Discuss the basic difference in approach adopted by Pigou and Pareto to deal with problems of welfare economics.

Discuss the basic difference in approach adopted by Pigou and Pareto to deal with problems of welfare economics.

The turn of the century coincided with a deepening and a remarkable renewal of the instruments constructed by the first teachers of marginalist thought. This renovation is, first of all, conceptual and will radically affect the fundamental notions of neoclassical economics. Thus, the notion of cardinal utility, on which the first formulations were implicitly or explicitly based, will be abandoned for the benefit of ordinal utility; that is, the representation of preferences by means of a measurement function will be substituted by classifying them in a relation of order. The artisan of this conceptual renovation is Wilfredo Pareto. Secondly, the revision serves to increase the power of the analytical instruments. Thus, the additive functions of diminishing marginal utility are abandoned in favor of the generalized index functions and the indifference curves; Edgeworth is the initiator of this instrumental renovation and Pareto the continuator.

This double conceptual and instrumental revision becomes the basis on which an equally renewed interpretation of consumer behavior is built, which is also associated with Pareto’s name, and which reaches its culmination in the work of Hicks, Valor and Capital, ( 1939) (1). At the same time, since satisfactions can not be the object of interpersonal comparisons, the new concept of utility will not fail to question the theory of the optimum and the Marshallian conception of welfare economics; In this field, too, the contribution of Pareto is fundamental; but not so much as to eclipse the contribution of Cambridge and especially the work of Pigou.

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  1. 2017

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