Business and Economics
Centre for Health Economics
Welfarism vs Extra-welfarism
John McKie
Centre for Health Economics
April, 2010
www.buseco.monash.edu.au/centres/che/
Business and Economics
Centre for Health Economics
www.buseco.monash.edu.au/centres/che/
Introduction
• Welfarism ‘asserts that social welfare ... is a function of only individual
welfare (or utility) and judgements about the superiority of one state of the
world ... over another are made irrespective of the non-utility aspects of
each state.’
(A. Culyer, ‘The Normative Economics of Health Care Finance and Provision’ (1991), p. 67)
•
Extra-welfarists argue that utility is not the only relevant argument, or indeed
even the most important argument, in the social welfare function. They
argue that health, not utility, is the most relevant outcome for conducting
normative analysis in the health sector.’
(J. Hurley, ‘An Overview of the Normative Economics of the Health Sector’ (2000), p. 63)
• Welfarism and non-welfarism incompatible?
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Introduction
Outline:
1.
Welfarism and welfare economics
2.
Theories of personal welfare: hedonism, preference-based theories,
objectivism
3.
Welfarism, communitarianism and deontology
4.
Nussbaum’s extension of Sen’s capability approach
5.
Extra-welfarism
6.
Conclusions
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Welfarism
• Distributive neutrality
– Utilitarianism: sum ranking
– The maximin principle: Rawls
– The Pareto criterion
• Welfarism confines the ‘evaluative space’ to individual welfare or utility: only
information about individual welfare or utility is necessary to judge whether
there has been (or would be) a change in social welfare.
• Ethical objections to utilitarianism, the Pareto criterion, etc.
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Welfarism
• The ‘four key tenets’ of the neo-classical framework:
– Utility maximization (individuals are self-interested utility maximizers)
– Individual sovereignty (individuals are the best judges of their own welfare)
– Consequentialism (utility is derived only from outcomes, not processes or
–
intentions)
Welfarism (social welfare is a function only of utility)
• Auxiliary assumptions in the context of applied welfare economics:
– Willingness-to-pay as a monetary metric for utility
– Market allocation as a reference standard
– A separation of efficiency and equity with an almost exclusive focus on efficiency
(J. Hurley, ‘An Overview of the Normative Economics of the Health Care Sector’ (2000), pp. 60-62)
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Welfarism
• The ‘four key tenets’ of the neo-classical framework:
– Utility maximization (individuals are self-interested utility maximizers)
– Individual sovereignty (individuals are the best judges of their own welfare)
– Consequentialism (utility is derived only from outcomes, not processes or
–
intentions)
Welfarism (social welfare is a function only of utility)
• Brouwer, Culyer et al.
• ‘If there is a single tenet of the four that characterises welfare economics,
and only welfare economics, it would seem to be the tenet of welfarism’
Brouwer, A. Culyer, et al., ‘Welfarism vs. Extra-welfarism’ (2008), p. 327).
• Why is this important?
(W.
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Welfarism
• How are we to understand individual welfare?
• Three main approaches:
– Hedonism
– Preference-based theories
– Objective theories
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Hedonism
• What would be best for an individual, or enhance their welfare, is what
would make their life happiest.
• ‘We want to consume products that satisfy our preferences, so going from
the analysis of products to the analysis of preference is going a layer
deeper, but what we want ultimately is happiness or true welfare ... not just
preference satisfaction.... Ultimately it is the degree of happiness that
counts, more so than preference.’
(Yew-Kwang Ng, Welfare Economics: Towards a More Complete Analysis (2004), pp. 258-9)
• Do we only value happiness?
– A party vs a Shakespearean tragedy, a documentary on the Nazis or a Sylvia
Plath biography?
– Freud
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Hedonism
• Do we only value states of mind?
– The person who does not want to be deceived, or wants to make a scientific
discovery, or to write music or poetry that others will enjoy.
– What we really desire is actual occurrence of the relevant outcomes rather than
a mere belief in their occurrence when this belief might be mistaken. We do not
want to live in a fool’s paradise … we want the real thing … even if this illusion
were subjectively indistinguishable from the real thing’.
(J. Harsanyi, 'Utilities, Preferences, and Substantive Goods’ (1997), pp. 129-145)
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Preference-based Theories
• What would be best for someone, or enhance their welfare, is what would
best fulfil their desires or preferences.
• Defective preferences:
– Ill-informed preferences
– Irrational preferences
– Remote preferences
– Trivial preferences
• Restrictions  falsifiability?
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Objective Theories
• Certain things are good or bad for us, whether or not we want to have the
good things, or to avoid the bad things. Eg: friendship, meaningful work, self
respect, aesthetic experience, recreation, religion.
• How does something get on the list?
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Objective Theories
• Certain things are good or bad for us, whether or not we want to have the
good things, or to avoid the bad things. Eg: friendship, meaningful work, self
respect, aesthetic experience, recreation, religion.
• How does something get on the list?  Basic needs
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Objective Theories
• Certain things are good or bad for us, whether or not we want to have the
good things, or to avoid the bad things. Eg: friendship, meaningful work, self
respect, aesthetic experience, recreation, religion.
• How does something get on the list?  Basic needs
• How do we determine basic needs?
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Objective Theories
• Certain things are good or bad for us, whether or not we want to have the
good things, or to avoid the bad things. Eg: friendship, meaningful work, self
respect, aesthetic experience, recreation, religion.
• How does something get on the list?  Basic needs
• How do we determine basic needs?  Constructivism
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Objective Theories
• Certain things are good or bad for us, whether or not we want to have the
good things, or to avoid the bad things. Eg: friendship, meaningful work, self
respect, aesthetic experience, recreation, religion.
• How does something get on the list?  Basic needs
• How do we determine basic needs?  Constructivism
• The items should be ‘customary, or at least widely encouraged’ in the
society to which an individual belongs. Basic needs are those that are
necessary for participation in ‘the community’s style of living’ (P. Townsend, Poverty
in the United Kingdom: A Survey of Household Resources and Standards of Living (1979), p. 249).
• Will the things on the list enhance an individual’s welfare if they don’t want
or value them?
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Welfarism and Other Theories
• Welfarism and communitarianism
– Insufficiently robust sense of community: emphasis on individualism, materialism, a failure to
recognize that we are ‘embedded’ in social roles and communal relationships, can only
flourish in a community, etc.
– Compatible with welfarism
– Genuine alternative
– Irreducible social goods
– ‘Individuals cannot by definition possess [irreducible social] goods. Rather they are features
of society … [which] are intrinsically valuable in the constitution of the goodness or badness
of states of affairs’ (C. Gore, ‘Irreducible Social Goods and the Informational Basis of Amartya Sen’s
Capability Approach’ (1997), p. 243).
– Unique properties of societies
– Good for society / good for individuals?
– Social welfare  individual welfare 
– Welfarism falsifiable (preference-based accounts)
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Welfarism and Other Theories
• Welfarism and deontology
– Deontology: rights, duties, obligations
– People have a right to a decent minimum level of health care. Equal access to
health care (e.g. by the disabled or those living in remote areas) is a right.
– Society or the government has an obligation to provide ….
– This is compatible with welfarism: e.g. a Rawlsian SWF.
– Genuine alternative: the promotion of some rights will enhance social welfare
independently of any effect upon the welfare of individuals.
– A communitarian claim is ‘a duty owed by the community [to an individual, and]
the carrying out of that duty is not just instrumental but is good in itself’ (G. Mooney,
‘Communitarian Claims as an Ethical Basis for Allocating Health Care Resources’ (1998), p. 1176).
– Welfarism falsifiable
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Welfarism and Other Theories
• Welfarism and non-consequentialism
– ‘Social institutions can be valued for themselves and not just for ... [their]
consequences’ (G. Mooney, ‘Communitarianism and Health Economics’ (2001), p. 47).
• The welfarist view: social institutions are not good or valuable in themselves,
they are good just for their consequences – i.e. their effects upon us.
• Welfarism falsifiable
• Mooney is not just saying that social institutions can be valued for their
process utility (as well as their outcome utility), but that social institutions
can be valued for themselves – i.e. they have intrinsic value (and not just
instrumental value).
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Capabilities
• Nussbaum’s ten ‘central human capabilities’ (M. Nussbaum, ‘Wellbeing, Contracts and
Capabilities’ (2005), pp. 41-2).
1. Life. Being able to live to the end of a human life of normal length ....
2. Bodily health. Being able to have good health; to be adequately
nourished ....
3. Bodily integrity. Being able to move freely from place to place; to be
secure against violent assault, including sexual assault and domestic
violence ....
4. Senses, imagination and thought. Being able to use the senses ...
Being able to think and reason [in a way] informed by an adequate
education ... Being able to use imagination in connection with ... Works
of one’s own choice, religious, literary, musical....
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Capabilities
5. Emotions. Being able to have attachments to things and people outside
ourselves ... to love those who love and care for us ....
6. Practical reason. Being able to form a conception of the good and to
engage in critical reflection about the planning of one’s life ...
7. Affiliation. Being able to live with others ... to engage in various forms
of social interaction ... having the social bases of self-respect ....
8. Other species. Being able to live with concern for and in relation to
animals, plants and the world of nature.
9. Play. Being able to laugh, to play, to enjoy recreational activities.
10. Control over one’s environment. Being able to participate effectively in
political choices that govern one’s life....
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Capabilities
• Functionings and capabilities
• Objective list accounts focus on functionings, the capability approach
focuses on the range of functionings available to people.
• Individual  social
• The capabilities could be determined socially, or derived empirically, and
could differ from society to society (P. Dolan et al., ‘Do We Really Know What Makes
Us Happy? A Review of the Economic Literature on the Factors Associated with Subjective WellBeing’ (2008), pp. 94-122).
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Capabilities
• ‘This approach does not ignore people with disabilities, and in general its
whole rationale is to address persistent inequalities and disadvantages,
both physical and social ... through a principled commitment to affirmative
action, to getting all citizens above the threshold on all major capabilities.’
(M. Nussbaum, ‘Wellbeing, Contracts and Capabilities’ (2005), pp. 43)
• Nussbaum: ‘it is a notorious fact about utilitarianism that it cannot directly
rule out slavery, or the oppression of women, or the misery of the poor.’
(‘Wellbeing, Contracts and Capabilities’ (2005), pp. 41-2)
• Welfarism is not committed to utilitarianism. A welfarist could accept the
items on Nussbaum’s list (or a similar empirically derived list) as a
framework for social policy. A welfarist would look at the implications for
individual welfare, including the welfare of the worst off.
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Extra-welfarism
• There are two versions of extra-welfarism.
• The first puts the focus exclusively on health, but may neglect certain ‘indirect
benefits’ of health care.
– An intervention to reduce unwanted pregnancies may lead to improved educational
opportunities and thus impact on an individual’s quality of life through routes other than
health (C. Swann et al. (2003), Teenage Pregnancy and Parenthood).
– An intervention to reduce alcohol consumption may impact on quality of life through
changes in criminal behaviour, not just health (S. Waller et al. (2002), Prevention and Reduction of
Alcohol Misuse).
• The second allows health, functionings, capabilities, utility …. ‘The emphasis
[on health] is in principle not exclusive’ (A. Culyer, ‘The Normative Economics of Health Care
Finance and Provision’ (1991), p. 91).
• What ‘indirect benefits’ should be included, and how they should be weighted
relative to health and each other, could be determined socially.
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Extra-welfarism
• Is it possible for a welfarist to hold that social welfare in the health sector is
a function primarily of health?
• The division of labour.
• Social welfare will be maximized if health is the primary objective in the
health sector, a safe and reliable transport system is the objective in the
transport sector, clean air and water are the objectives in the environmental
sector, and so on.
• The mission of government agencies ‘is not to advance overall welfare.
[They] are created and limited by statutes that define their legal purposes
and limit their powers and procedures. Agencies should advance overall
welfare only to the extent that doing so involves a particular agency’s
mission and expertise.’ (M. Adler & E. Posner, New Foundations of Cost-Benefit Analysis
(2006), pp. 185-6)
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Extra-welfarism
• Social welfare is a function of individual welfare or utility, but health-related
social welfare – social welfare in the health sector – is a function primarily of
health (e.g. QALYs).
• Global welfarism (i.e. a welfarist ‘SWF’) and local extra-welfarism (i.e. an
extra-welfarist ‘HR-SWF’).
• This provides a rationale for the ‘decision maker approach’. Why the focus
on health (rather than on utility more generally) in the health sector?
– ‘Under the decision-maker approach, the relevant arguments in the objective
function are defined by the decision-maker … decision-makers have declared that
producing health is the primary objective of the health care system’ (J. Hurley, ‘An
Overview of the Normative Economics of the Health Care Sector’ (2000), pp. 64).
– The real reason is that decision-makers, health economists and the public
implicitly recognize the cogency of the ‘division of labour’ argument.
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Conclusions
• ‘Welfarism’ should not be used as shorthand for ‘welfare economics’. They
need to be carefully distinguished. It is possible to accept welfarism and
reject consumer sovereignty, willingness to pay, the Pareto criterion, and so
on.
• It is not incompatible with welfarism that society’s health (and other)
resources should be distributed fairly. What amounts to a fair distribution
might be given a utilitarian interpretation, or a Rawlsian interpretation, or a
Paretian interpretation. All of these are compatible with welfarism.
• A welfarist can accept the benign things that communitarians say: that we
are too individualistic, lack a robust sense of community, etc. A welfarist
can agree that social welfare would be increased if there was more cooperation, mutual respect, sharing etc.
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Conclusions
• A welfarist can accept the efficacy of rights and duties. In particular, having
rights in place (e.g. the right to a decent minimum of health care) and
corresponding obligations (e.g. upon the government to provide such a
minimum) can play an important role in enhancing the welfare of the worst
off.
• Welfarism is falsifiable. If some things are good for society independently of
their effect upon the welfare of individuals (as some communitarians,
deontologists and non-consequentialists argue) then welfarism is false.
• Maintaining that health should be the primary focus in the health sector is
not incompatible with welfarism. Global welfarism is not incompatible with
local extra-welfarism.
Business and Economics
Centre for Health Economics
Welfarism vs Extra-welfarism
John McKie
Centre for Health Economics
April, 2010
www.buseco.monash.edu.au/centres/che/