Answer to Question #66357 in Microeconomics for CHANDNI BAROT

Question

Discuss the approaches adopted by Pigou and Pareto for analyzing the problem of
welfare economics.

Answer 1

In Pigou’s Wealth and Welfare, as well as in each of the four editions of his The Economics of Welfare, one chapter is dedicated entirely to the critical assessment, and ultimate rejection, of ‘Pareto’s law’ of income distribution. This note highlights Pigou’s uncorrected misreading of a critical aspect of Pareto’s analysis of income distribution; illustrates what his criticisms of Pareto’s law reveal about Pigou’s objectives for welfare economics; and indicates how Pareto’s analysis of income distribution could have been criticised in a manner that is consistent with Pigou’s objectives for welfare economics.