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Social Choice and Individual Values - Kenneth Joseph Arrow
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SOCIAL CHOICE AND INDIVIDUAL VALUES
By
KENNETH J. ARROW
Table of Contents
Contents
Table of Contents 4
COWLES COMMISSION FOR RESEARCH IN ECONOMICS 5
DEDICATION 7
ACKNOWLEDGMENTS 8
CHAPTER I — INTRODUCTION 10
1. THE TYPES OF SOCIAL CHOICE 10
2. SOME LIMITATIONS OF THE ANALYSIS 14
CHAPTER II — THE NATURE OF PREFERENCE AND CHOICE 16
1. MEASURABILITY AND INTERPERSONAL COMPARABILITY OF UTILITY 16
2. A NOTATION FOR PREFERENCES AND CHOICE 18
3. THE ORDERING OF SOCIAL STATES 22
4. A DIGRESSION ON RATIONALITY AND CHOICE 24
CHAPTER III — THE SOCIAL WELFARE FUNCTION 26
1. FORMAL STATEMENT OF THE PROBLEM OF SOCIAL CHOICE 26
2. POSITIVE ASSOCIATION OF SOCIAL AND INDIVIDUAL VALUES 28
3. THE INDEPENDENCE OF IRRELEVANT ALTERNATIVES 29
4. THE CONDITION OF CITIZENS’ SOVEREIGNTY 31
5. THE CONDITION OF NON-DICTATORSHIP 32
6. THE SUMMATION OF UTILITIES 33
CHAPTER IV — THE COMPENSATION PRINCIPLE 35
1. THE PAYMENT OF COMPENSATION 35
2. THE POSSIBILITY OF COMPENSATION 38
CHAPTER V — THE GENERAL POSSIBILITY THEOREM FOR SOCIAL WELFARE FUNCTIONS 45
1. THE NUMBER OF ALTERNATIVES 45
2. TWO INDIVIDUALS AND THREE ALTERNATIVES 47
3. PROOF OF THE GENERAL POSSIBILITY THEOREM 49
4. INTERPRETATION OF THE GENERAL POSSIBILITY THEOREM 56
CHAPTER VI — THE INDIVIDUALISTIC ASSUMPTIONS 58
1. STATEMENT OF THE ASSUMPTIONS 58
2. THE POSSIBILITY THEOREM UNDER INDIVIDUALISTIC ASSUMPTIONS 59
3. QUASI-ORDERINGS AND COMPATIBLE WEAK ORDERINGS 60
4. AN EXAMPLE 63
5. A ONE-COMMODITY WORLD 64
6. GROUP CHOICE IN THE THEORY OF GAMES 65
7. DISTRIBUTIONAL ETHICS COMBINED WITH INDIVIDUALISM 66
CHAPTER VII — SIMILARITY AS THE BASIS OF SOCIAL WELFARE JUDGMENTS 68
1. COMPLETE UNANIMITY 68
2. THE CASE OF SINGLE-PEAKED PREFERENCES 69
3. THE IDEALIST POSITION AND THE CONCEPT OF CONSENSUS 73
4. KNOWLEDGE AND THE MEANING OF SOCIAL ALTERNATIVES 78
5. PARTIAL UNANIMITY 79
6. THE DECISION PROCESS AS A VALUE 80
REFERENCES 82
REQUEST FROM THE PUBLISHER 87
COWLES COMMISSION FOR RESEARCH IN ECONOMICS
THE COWLES COMMISSION FOR RESEARCH IN ECONOMICS is a not-for-profit corporation founded in 1932 for the purpose of conducting and encouraging investigations into economic problems. The results of research by members of the Commission’s staff are published in two series: Cowles Commission Monographs in book form, and shorter papers, usually reprints of articles from journals, as Cowles Commission Papers, New Series. The COMMISSION is affiliated with the ECONOMETRIC SOCIETY, an international society for the advancement of economic theory in its relation to statistics and mathematics.
PRESIDENT
ALFRED COWLES
DIRECTOR OF RESEARCH
TJALLING C. KOOPMANS
ASSISTANT DIRECTOR OF RESEARCH
WILLIAM B. SIMPSON
RESEARCH ASSOCIATES{1}
KENNETH J. ARROW
HERMAN CHERNOFF
CARL CHRIST
GERARD DEBREU
NATHAN J. DIVINSKY
JOHN GURLAND
CLIFFORD HILDRETH
WILLIAM C. HOOD
J. G. C. TEMPLETON
LEONID HURWICZ
HARRY MARKOWITZ
JACOB MARSCHAK
OLAV REIERØL
STANLEY REITER
HERMAN RUBIN
MORTON L. SLATER
ERLING SVERDRUP
RESEARCH CONSULTANTS{2}
STEPHEN G. ALLEN
Stanford University
THEODORE W. ANDERSON, JR.
Columbia University
HAROLD T. DAVIS
Northwestern University
TRYGVE HAAVELMO
University Of Oslo
DEDICATION
To SELMA my wife
ACKNOWLEDGMENTS
This study was initiated in the summer of 1948 while I was on leave from the Cowles Commission as a consultant to The RAND Corporation, which is engaged in research under contract with the United States Air Force. It was further developed and assumed its present form at the Cowles Commission during the period of October, 1948, to June, 1949, as part of the general research program of the Commission which is conducted under a grant from the Rockefeller Foundation. During part of this period support was also received from The RAND Corporation under a contract between RAND and the Cowles Commission for the study of resource allocation. To these organizations I wish to express my appreciation for the interest shown in this study and for the facilities accorded to me.
I wish to express my indebtedness to the following individuals at RAND: A. Kaplan, University of California at Los Angeles, and J. W. T. Youngs, University of Indiana, for guidance in formulating the problem, and D. Blackwell, Howard University, and O. Helmer for other helpful discussions. The manuscript has been read by A. Bergson and A. G. Hart, Columbia University, and by T. C. Koopmans, Cowles Commission for Research in Economics and the University of Chicago, and I owe much, both in improvement of presentation and in clarification of meaning, to their comments. Development of the economic implications of the mathematical results has been aided by the comments of F. Modigliani, Cowles Commission and the University of Illinois, T. W. Schultz, University of Chicago, and H. Simon, Cowles Commission and Carnegie Institute of Technology. I have had the benefit of comments by J. Marschak, Cowles Commission and the University of Chicago, on the question of the measurability of utility, touched on in Chapter II. The section in Chapter VII on the decision process as a value in itself has benefited from suggestions by P. J. Bjerve, Central Statistical Bureau, Oslo, Norway, then a guest of the Cowles Commission, and M. Friedman, University of Chicago. For guidance in the unfamiliar realms of political philosophy, I must thank D. Easton, University of Chicago. The mathematical exposition has been considerably improved as a result of comments by T. W. Anderson, Cowles Commission and Columbia University, E. Nagel, also of Columbia University, J. C. C. McKinsey, The RAND Corporation, and J. W. T. Youngs. I must also mention the stimulation afforded by several staff meetings of the Cowles Commission in which my thesis was submitted to the research group for discussion and criticism. Needless to say, any error or opacity remaining is my responsibility.
I cannot fully acknowledge here the great debt I owe to my many teachers, but I cannot refrain from singling out H. Hotelling, now of the University of North Carolina, to whom I owe ray interest in economics and particularly my interest in the problems of social welfare.
Acknowledgment is also due Mrs. Jane Novick, Editorial Secretary of the Cowles Commission, for preparing the manuscript for publication and seeing it through the press and to Miss Jean Curtis, Editorial Assistant, for valuable aid in proofreading and preparation of the index.
K. J. A.
CHAPTER I — INTRODUCTION
1. THE TYPES OF SOCIAL CHOICE
In a capitalist democracy there are essentially two methods by which social choices can be made: voting, typically used to make political
decisions, and the market mechanism, typically used to make economic
decisions. In the emerging democracies with mixed economic systems, Great Britain, France, and Scandinavia, the same two modes of making social choices prevail, though more scope is given to the method of voting and decisions based directly or indirectly on it and less to the rule of the price mechanism. Elsewhere in the world, and even in smaller social units within the democracies, social decisions are sometimes made by single individuals or small groups and sometimes (more and more rarely in this modern world) by a widely encompassing set of traditional rules for making the social choice in any given situation, e.g., a religious code.{3}
The last two methods of social choice, dictatorship and convention, have in their formal structure a certain definiteness absent from voting or the market mechanism. In ideal dictatorship there is but one will involved in choice, in an ideal society ruled by convention there is but the divine will or perhaps, by assumption, a common will of all individuals concerning social decisions, so in either case no conflict of individual wills is involved.{4} The methods of voting and the market, on the other hand, are methods of amalgamating the tastes of many individuals in the making of social choices. The methods of dictatorship and convention are, or can be, rational in the sense that any individual can be rational in his choices. Can such consistency be attributed to collective modes of choice, where the wills of many people are involved?
It should be emphasized here that the present study is concerned only with the formal aspects of the above question. That is, we ask if it is formally possible to construct a procedure for passing from a set of known individual tastes to a pattern of social decision-making, the procedure in question being required to satisfy certain natural conditions. An illustration of the problem is the following well-known paradox of voting.
Suppose there is a community consisting of three voters, and this community must choose among three alternative modes of social action (e.g., disarmament, cold war, or hot war). It is expected that choices of this type have to be made repeatedly, but sometimes not all of the three alternatives will be available. In analogy with the usual utility analysis of the individual consumer under conditions of constant wants and variable price-income situations, rational behavior on the part of the community would mean that the community orders the three alternatives according to its collective preferences once for all, and then chooses in any given case that alternative among those actually available which stands highest on this list. A natural way of arriving at the collective preference scale would be to say that one alternative is preferred to another if a majority of the community prefer the first alternative to the second, i.e., would choose the first over the second if those were the only two alternatives. Let A, B, and C be the three alternatives, and 1, 2, and 3 the three individuals. Suppose individual 1 prefers A to B and B to C (and therefore A to C), individual 2 prefers B to C and C to A (and therefore B to A), and individual 3 prefers C to A and A to B (and therefore C to B). Then a majority prefer A to B, and a majority prefer B to C. We may therefore say that the community prefers A to B and B to C. If the community is to be regarded as behaving rationally, we are forced to say that A is preferred to C. But in fact a majority of the community prefer C to A.{5} So the method just outlined for passing from individual to collective tastes fails to satisfy the condition of rationality, as we ordinarily understand it. Can we find other methods of aggregating individual tastes which imply rational behavior on the part of the community and which will be satisfactory in other ways?{6}
If we continue the traditional identification of rationality with maximization of some sort (to be discussed at greater length below), then the problem of achieving a social maximum derived from individual desires is precisely the problem which has been central to the field of welfare economics. There is no need to review the history of this subject in detail.{7} There has been controversy as to whether or not the economist qua economist could make statements saying that one social state is better than another. If we admit meaning to interpersonal comparisons of utility, then presumably we could order social states according to the sum of the utilities of individuals under each, and this is the solution of Jeremy Bentham, accepted by Edgeworth and Marshall.{8} Even in this case we have a choice of different mathematical forms of the social utility function in terms of individual utilities; thus, the social utility might be the sum of the individual utilities or their product or the product of their logarithms or the sum of their products taken two at a time. So, as Professor Bergson has pointed out, there are value judgments implicit even at this level.{9} The case is clearly much worse if we deny the possibility of making interpersonal comparisons of utility. It was on the latter grounds that Professor Robbins so strongly attacked the concept that economists could make any policy recommendations,{10} at least without losing their status as economists and passing over into the realm of ethics. On the other hand, Mr. Kaldor and, following him, Professor Hicks have argued that there is a meaningful sense in which we can say that one state is better than another from an economic point of view,{11} even without assuming the reality of interpersonal comparison of utilities.